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.

Recent Publications

• U.S. RMBS Credit Indices
• KBRA Non-QM RMBS Default Study: A Decade of Insights
• The Evolving Landscape of Noncitizen Borrowers in U.S. RMBS

About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

Doc ID: 1011776

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