Agency MBS (Fannie, Freddie, Ginnie) dominates conventional and government lending. But for jumbo, non-QM, and second liens, private label securitization is the capital market that sets pricing.
How Private Label MBS Works
In a private label deal, a sponsor aggregates loans into a pool and issues bonds structured in tranches. Senior tranches receive principal and interest first and carry lower yields; subordinate tranches absorb losses first and carry higher yields. Rating agencies grade each tranche, and institutional investors buy based on yield and credit risk. Unlike agency MBS, private label deals carry no government guarantee.
Why Spreads Are Wider on Non-QM
- ✦Investor risk premium: no agency wrap means credit risk stays on the bondholders
- ✦Liquidity discount: private label market is smaller and less liquid than the agency TBA market
- ✦Complexity premium: more documentation review and due diligence required per deal
- ✦Prepayment uncertainty: non-QM borrowers have less predictable refinance behavior than agency borrowers
What This Means for Your Rate Quotes
When private label spreads tighten, non-QM rates move closer to conforming rates and volume increases. When spreads widen due to macro uncertainty, non-QM pricing becomes expensive relative to agency options. Tracking private label RMBS spreads through sources like Mortgage News Daily gives LOs early visibility into whether non-QM pricing is about to improve or deteriorate. For jumbo borrowers, portfolio lender rates often diverge from private label rates during volatility, creating arbitrage opportunities worth presenting to clients.
Aria can explain how secondary market conditions affect non-QM pricing and what that means for a specific borrower scenario. Ask at vicariointel.com.
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