Aug Update: Non-QM Skewed by Sunday Effect, dv01 Prepayment Model Tracks Closely, Second Liens Hold Firm

The latest dv01 research is now available for download.

Quick Insights

Non-QM: Sunday Effect Distorts Performance

• Overall Impairments rose 60 bps MoM—the largest jump in 15 months—but primarily due to the Sunday month-end payment effect.
• First-Time New Impairments also spiked, breaking a steady two-year trend.
• Prepayments fell slightly driven by modestly higher mortgage rates in May and early June.

dv01 Non-QM Prepayment Model: Accuracy Holds, Attribution Highlights

• dv01’s Non-QM Prepayment Model showed its strongest alignment with realized activity since January, with minimal variance across doc types except VOE.
• Attribution analysis of GCAT 2023-NQM2 revealed slower-than-cohort speeds, explained by heavy New York exposure.
• CPA/P&L loans led recent prepayments, while DSCR loans continued to trail by ~3 CPR.

Second Liens: Seasoning Drives CES, Volatility in HELOCs

• Closed-End Seconds (CES):
  • Impairment increases remain modest and linked to natural seasoning.
  • Dispersion is sharp across FICO bands, with all 2025 impairment increases concentrated in Below 720 borrowers.
• HELOC
  • First-Time New Impairments declined in August, offsetting July’s rise.
  • Cure rates remain the highest of any mortgage product, though easing slightly.
  • Prepayments are concentrated among 780+ FICO borrowers, with CLTV showing the widest prepayment dispersion of any attribute.