Press Release|RMBS
KBRA Releases Research – Non-QM RMBS Default Study: Credit Attribute Insights
14 Oct 2025 | New York
KBRA releases its latest non-qualified mortgage (NQM) RMBS default study. In this report, we add new borrower- and loan-level variables and report results for these additions through August 30, 2025 (the latest available), to capture emerging trends in the non-prime RMBS market. These include: Self-Employment Status, Number of Borrowers, Number of Mortgaged Properties, Due Diligence Results, Lease-in-Place (LIP) Flag, and Prepayment Penalty Term (PPT). These enhancements are intended to improve visibility into borrower-level dynamics, risk layering, and post-origination performance in NQM RMBS.
Key Takeaways
- NQM issuance in 2025 is on track to match or potentially surpass 2024’s high-water mark, with $33 billion issued year-to-date (YTD) as of August 30.
- Excluding the pandemic-driven spike in 2020, annual default rates have generally remained below 2%. The YTD 2025 rate of 0.8% suggests this trend has moderated so far, and the full-year rate could land around 1.2%. Within the KBRA-rated dataset, the cumulative default rate across all loans stands at 3.2%. Historical losses remain below 5 basis points (bps) across the securitized NQM universe.
- In terms of borrower-level findings, single-borrower loans exhibit higher observed defaults (3.4%) than multi-borrower loans (e.g., 1.8% for two-borrower loans). Loans to self-employed borrowers show a 3.2% default rate versus 1.8% for wage-earners, although this gap also reflects a correlation with loan documentation and occupancy.
- For loan-level findings, for loans underwritten to debt service coverage ratio (DSCR), purchase loans are often made on vacant properties intended for rent, with 82.2% lacking LIPs; defaults are clustered near 2%, with short-term LIPs slightly outperforming. In contrast, refinance loans commonly include LIPs (61.7%, mostly long-term) and exhibit higher default rates, particularly among long-term and no LIP cohorts, while short-term LIP loans show lower and less volatile defaults, possibly reflecting investor experience and smaller sample size. Longer PPT terms serve as a proxy for a higher concentration of risk attributes (investor occupancy, cash-out, limited documentation) and are associated with higher default rates. For loans with multiple mortgaged properties, defaults are nonlinear, but core credit is stable. For Third-Party Review (TPR) results, defaults generally stratify with review quality, and weaker or absent TPR is associated with higher default incidence.
Click here to view the report.