Investment in non-agency RMBS is creeping up, according to a report by Pensions&Investments. And so far demand is actually exceeding supply. Back before the financial crisis, non-agency RMBS made up more than half the market, representing about $1.17 trillion. But in 2015, they only accounted for $75.9 billion, just 5.4% of the market.
Many investment managers like non-agency RMBS because most of the foreclosures that are likely to have happened in the mortgages backing the bonds have already occurred, according to P&I. The bonds are favored by alternative investment managers, fixed-income managers, and real-estate investment trusts.
But non-agency bonds are slowly making a comeback. Companies like Lone Star Funds, Angel Oak, Beach Point Capital Management and Varde Partners have all issued non-agency bonds, P&I reported.
“These are healthy signs that the non-agency market is trying to find its way and come back,” Harrison Choi, managing director for TCW Group, told P&I. “…That said, it’s in the very, very early stages. We are very far away from where we were before the financial crisis.”
The market for nonprime residential mortgage-backed securities, nearly nonexistent since the financial crisis, is beginning to make a small comeback.