The volume of privately securitized no-doc loans from Financial institutions for community development is modest but is growing along with its overall lending activity.
About $1.2 billion in CDFI loans have been placed into new private-label residential mortgage-backed securities year to date, according to a new Kroll Bond Ratings Agency released Tuesday. This already exceeds the previous year’s total of around 1 billion US dollars.
How CDFIs’ no- or low-doc loans fare will be a test of public policy that exempts these institutions the refund rule. The understanding is that using the exemption will sustainably expand access to home ownership.
“Despite the potential risks posed by no-doc lending, KBRA believes that with prudent policies and good faith originators based on sound underwriting, some lenders may be able to strike a balance between expanding the availability of home loans and avoidance of harm to borrowers whom such loans aim to help,” analysts said in the report.
At least five rerated transactions have involved no-ratio loans since 2021. The first transaction listed by KBRA came to market in May last year through a conduit shelf registration. A consumer loan transaction with 100% no-doc loans went to market in November 2021. In January 2022, according to KBRA, a 100% no-doc transaction issued by an originator came to market. At least two other transactions have come to the market.
According to the report’s authors, Edward DeVito, Ashish Sharda, and Jack Kahan, CDFI loans began appearing in the private securitization market in 2019.
Lenders like Quontic Bank have been funding no-doc loans under the ATR exemption since at least 2020.
Loans with limited or no income information defaulted at a rate 1.1 to 5.4 times higher than fully documented loans during the housing crash of the Great Recession. KBRA analysts are therefore closely watching the contemporary equivalents, but so far have seen no cause for concern. Those included in securitisations that KBRA has been rating since 2021 “do not have a meaningful performance history or large delinquency pipelines,” the analysts said.
Comments are closed.