KBRA Ratings Signal Continued Activity in Non-Prime Mortgage Market
New York, NY – KBRA recently assigned preliminary ratings to ten classes of mortgage pass-through certificates from CROSS 2026-NQM3 Mortgage Trust, a $538.3 million transaction. This move underscores ongoing investor interest in the non-prime mortgage-backed securities (RMBS) market, despite broader economic uncertainties.
Understanding the CROSS 2026-NQM3 Trust
The CROSS 2026-NQM3 trust is collateralized by 911 residential mortgages. A significant portion – 72.6% – of these mortgages are considered “non-prime,” meaning they are originated to borrowers who don’t meet the criteria for qualified mortgages. Fixed-rate mortgages (FRMs) comprise the majority of the pool at 78.2%, with hybrid adjustable-rate mortgages (ARMs) making up the remaining 21.8%. Approximately 64.6% of the loans are non-qualified mortgages (Non-QM), and 34.9% are exempt from the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule.
The Rise of Non-QM Lending
Non-QM lending has been steadily increasing as a segment of the mortgage market. These loans cater to borrowers with unique financial situations – self-employed individuals, those with complex income streams, or those with recent credit events – who may not qualify for traditional mortgages. While carrying higher risk, Non-QM loans often offer higher yields, attracting investors seeking increased returns.
KBRA’s Rating Process and Key Considerations
KBRA’s assessment involved a thorough analysis of the mortgage pool using its Residential Asset Loss Model (REALM). This included third-party loan file due diligence, cash flow modeling, and reviews of transaction parties and legal documentation. The rating approach highlights the importance of rigorous risk assessment in the Non-QM sector.
Co-Sponsorship and Market Dynamics
CROSS 2026-NQM3 is a co-sponsored transaction between CrossCountry Capital, LLC (CCC) and APF II RESI O4B, LLC. This co-sponsorship structure is common in RMBS transactions, providing additional oversight and risk management. The transaction follows the CROSS shelf, a platform for issuing RMBS.
Recent Trends in RMBS Ratings
Just weeks prior, on February 27, 2026, KBRA assigned ratings to the CROSS 2026-NQM2 Mortgage Trust, a $612.2 million transaction collateralized by 1,232 residential mortgages. This earlier transaction as well featured a substantial concentration of non-prime loans (71.0%) and a mix of FRMs and ARMs. Fitch Ratings also indicated plans to rate CROSS 2026-NQM3, signaling broad market participation.
Another notable transaction, the New Residential Mortgage Loan Trust 2026-NQM3 (NRMLT 2026-NQM3), a $475.8 million non-prime RMBS, received preliminary ratings from KBRA in February 2026, sponsored by Rithm Capital Corp.
What Does This Signify for the Future?
The continued issuance and rating of Non-QM RMBS suggest a resilient market segment. Several factors are likely driving this trend:
- Demand for Yield: In a low-interest-rate environment, investors are actively seeking higher-yielding assets, and Non-QM RMBS can provide that.
- Housing Market Dynamics: Despite fluctuations, the housing market remains relatively strong in many areas, supporting mortgage performance.
- Evolving Borrower Profiles: The increasing number of self-employed individuals and those with non-traditional financial profiles is driving demand for Non-QM loans.
Pro Tip:
When evaluating RMBS investments, always carefully review the underlying collateral, the sponsor’s track record, and the rating agency’s analysis.
FAQ
Q: What is a Non-QM loan?
A: A Non-QM loan is a mortgage that does not meet the requirements of the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule.
Q: What is an RMBS?
A: An RMBS is a type of asset-backed security that is secured by a collection of mortgages.
Q: What does KBRA do?
A: KBRA is a credit rating agency that assesses the creditworthiness of debt securities, including RMBS.
Q: What is the CROSS shelf?
A: The CROSS shelf is a platform used for issuing RMBS transactions.
Did you know? The Residential Asset Loss Model (REALM) is a key tool used by KBRA to assess the risk of mortgage pools.
To learn more about mortgage-backed securities and the factors influencing their performance, explore additional resources on KBRA’s website.
What are your thoughts on the future of the Non-QM mortgage market? Share your insights in the comments below!
