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Securitization in Focus — August 2023

Asset-Backed Securities (ABS)

 

Auto (month-over-month)(%)

Prime Auto
ABS		 Subprime
Auto ABS
60+ Day
Delinquencies		 Up to 0.37 Up to 4.87
Defaults
 Up to 0.80 Up to 10.60

Voluntary prepayment speeds slowed month over month and year over year for prime and subprime auto deals as consumers deal with back-to-school expenses and tax refunds have been expended.

Bifurcation in
Consumer ABS (%)

Marketplace Lending
(loans generated online) (YoY)

Delinquencies Defaults
+0.70 +4.84

Consumer ABS Loans (YoY)

Delinquencies Defaults
-0.23 +1.94

Credit Card (MoM)

Delinquencies Charge-offs 
+0.27 +0.59

Residential Mortgage- Backed Securities (RMBS)

 

60+ Day Delinquencies

Non-Qualified Mortgages1

Increased to 2.2%

Prime Mortgages

Held steady at 0.4%

Home Prices

The S&P/Case-Shiller US National Home Price Index has returned to mid-2022 post-COVID peak, despite significant increases in mortgage rates since the Fed began this tightening cycle.

S&P/ Case-Schiller US National Home Price Index

Exhibit 1

Issuance Update

 

Issuance ($B)

ABS CMBS Non-
Agency
RMBS
2022 243 186 136
YTD 2023
 171 60 41
2023
Annualized		 228 81 55

Commercial Mortgage- Backed Securities (CMBS)

 

About the fundamentals2

SASB Conduit CRE
CLO
Balance ($B) 254 362 79
Watchlist (%)
 32.6 19.5 30.9
Special
Servicing (%)		 6.9 6.0 0.7
+60 Day
Delinquencies (%)		 2.7 3.2 0.6

Quality divergence

High-quality CMBS offer decent spread pick-up relative to single-A corporates in the current market.

Exhibit 1
 

Hurricane Idalia impacts

  • Increase in hotel and self-storage demand
  • Rebuilding positive for local economy
  • Spike in special servicing and delinquencies

418 CMBS loans

$8.9B total balance

334 deals

>50% tied to multifamily

47% exposure in Tampa Bay

 

*Securitized deals usually have specific language around flood insurance because flood insurance is often not covered by an “all risk” policy.

Sources: Deutsche Bank, Federal Reserve Bank of St. Louis, Bloomberg.

1Non-qualified mortgages are non-standard mortgages for borrowers that do not meet requirements of typical qualified mortgages, i.e., alternative income documentation, higher debt limits, higher down payments, etc.

2SASB — Single asset, single borrower. CRE CLO — Commercial real estate collateralized loan obligation.

Bonds rated AAA, AA, A and BBB are considered investment grade.

ICE BofA CMBS Fixed Rate AAA 7-10 Year Index measures the performance of US dollar denominated AAA-rated commercial mortgage-backed securities with a remaining term to maturity of greater than or equal to 7 years and less than 10 years in the US domestic market. ICE BofA Single-A US Corporate Index measures the performance of US dollar denominated A-rated corporate debt publicly issued in the US domestic market. S&P/Case-Shiller US National Home Price Index measures changes in the total value of all existing single-family housing stock.

See diamond-hill.com/disclosures for a full copy of the disclaimer.

The views expressed are those of Diamond Hill as of September 2023 and are subject to change without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.

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