Quote from FIXnotes on October 8, 2025, 2:39 pm

RAMS Whole Loan Update – October 2025                                                                      

"Those who do not remember the past are condemned to repeat it.” – Philosopher George Santayana.

The hope for reduced interest rates is giving everyone a much-needed shot of espresso, but our enthusiasm is muted. Headwinds are threatening property values on many fronts, including lack of affordability, skyrocketing tax and insurance costs (with some markets now functionally uninsurable), and a dose of good old-fashioned fraud (or its “polite sister” negligence).

Which brings us to the core question: Are investors being fairly compensated for the risk of a potential negative change in property value? The convergence of yields we're seeing, which we explore later in this Update, indicates minimal variance in price across many product types. And closed end second liens trading north of 106%? We’re wondering, at this price, how much room is left for a prudent default loss reserve?

Our goal with this Update, is to share with you our observations garnered from the billions of dollars in whole loans moving across our platform every month. 

The Big Picture: Rates, Rallies, and the Fight for Volume

The mortgage market remains anchored by the core dynamics of supply and demand, still tightly tethered to the “higher for longer” narrative. After hanging around 7% for the first part of 2025, we’ve finally had a decent rally, putting current rates firmly in the low 6% area.

On the supply side, an immediate uptick in origination volume is noticeable, but we continue to lag historic norms. Refi activity remains minimal, and purchase volumes are constrained by the dual pressures of affordability and limited housing inventory. The pipeline of new production remains disappointingly thin.

Conversely, demand for mortgage assets has strengthened. The influx of capital from insurance companies, asset managers, and hedge funds is squeezing spreads tighter across the credit curve, particularly in the higher-quality Non-Agency and Non-QM sectors.

Overall, the market is experiencing a technical imbalance: muted supply against resilient, growing, demand. This is the simple math that has led to a tightening in pricing and spreads.

The table below reflects how yields for mortgage products have converged across different product types. While convexity profiles still vary, credit spreads are tighter than historic levels. Some investors are becoming hypersensitive to LTVs across all products, with a few outright avoiding cash-out refinances on larger balance loans.

Property Values and Housing Market Headwinds

What are the current “Housing Market Headwinds?”

• Affordability Remains the King of Constraints: High mortgage rates, coupled with elevated home prices, continue to make homeownership a struggle. It takes a significant chunk of median household income to cover a typical monthly mortgage payment.
• The "Lock-in Effect" Persists: Borrowers who locked in 3% rates years ago are essentially chained to their homes, ensuring that limited existing inventory will sustain upward pressure on home prices.
• Contagion and Scrutiny: We’ve seen a rapid escalation of investor scrutiny on appraisals, with many tightening guidelines or even halting lending in locations such as Baltimore, Maryland. This reaction to appraisal fraud may create a fear that spreads to other markets.
• Regional Variations: Markets in parts of California, Florida, and Texas have seen price reductions. More affordable inland regions may experience stronger gains as the trend of buyers seeking lower-cost options continues.
• New Construction Slowing: While multifamily housing starts surged previously, higher rates are now slowing down new builds. Single-family building permits are roughly the same as a year ago, and housing starts have only slightly increased, which is not enough to fully address the long-term housing shortage. Warren Buffet recently bought shares of builder Lennar, which may signal upside opportunity in housing starts and new construction in the near future.
• New Texas Senate Bill 17:  This bill went into effect on September 1, 2025, and prohibits the acquisition of real estate by foreign individuals from certain “Designated Countries” identified by the U.S. Director of National Intelligence as national security risks. The list includes China, Russia, Iran, and North Korea.
• The Rising Cost of Staying Put: The table below, originally provided in the ICE September Mortgage Monitor, illustrates the average cost of property insurance is up 11.3% YOY and a staggering 69% over the past 5+ years. This isn't a small problem; it's a critical stressor on a borrower’s ability to pay. While not to the same extent, property taxes have increased 26.8% over the past 5+ years.

Non-QM: The Market’s Favorite Meal, but Hold the Side of "Crab Cakes"

 Non-QM continues to be the market’s favorite. Demand continues to outpace supply, with tightening spreads driving down new production coupons from the mid-7% area to the high 6% area. The high-FICO and low-LTV characteristics of recent production have resulted in muted losses, although we're seeing an upward trend in delinquencies for some of the more recent vintages.

High Loan Balance Loans and Stringent Underwriting: Due to the inherent risk of larger loan amounts, lenders have maintained strict underwriting standards for Jumbo Non-QM loans. This includes requirements for higher credit scores (often 700+), larger down payments, and significant cash reserves. Reliance Letters have become standard operating procedure for originators selling to dealers and aggregators. Super Jumbo loans have come under greater scrutiny as certain residential markets have softened due to a combination of higher interest rates, inflation, and higher property insurance and property tax costs.

Crab Cakes: A Baltimore Non-QM Cautionary Tale

 2025 has brought a major DSCR fraud scandal in Baltimore, primarily impacting the Non-QM space. The alleged scheme involved realtors, appraisers, and LLCs connected to “Gold Loans,” which filed for Chapter 11 bankruptcy in March 2025.

The mechanics of the fraud were shockingly simple: appraisal orders with a $444 appraisal fee allegedly served as a clear "signal" to inflate the appraised value.

• The Opportunity: Loans resulting from this fraud are available at significant discounts. We traded loans of this type in the 30s. For the strong-stomached investor with rigorous internal QC and property value assessment skills, there's a chance to cherry-pick cleaner loans and extract value by way of Fix & Flip.
• The Restructuring Play: The bankruptcy proceedings (for Gold and/or related LLCs) may offer pathways to claim or restructure collateral assets at favorable terms for those willing to get involved in the reorganization process.

This scandal is a harsh reminder: inflated appraisals and collusion can dramatically transform loan risk profiles overnight. Sellers must reinforce controls, and buyers must proceed with caution and precision, particularly in less liquid, more credit-sensitive markets like Baltimore. And, just as a reminder, you need a lender’s license to foreclose in Maryland.

ITINs and Foreign Nationals: Political Headwinds vs. Proven Performance

 Political headwinds involving the deportation of foreign nationals have placed a cautionary flag on the ITINs.

ITIN mortgages are Non-QM loans for U.S. tax filers without a Social Security number. Liquidity is limited because loans are not eligible for GSE securitizations. Most production is held in portfolio or carved into small slices of Non-QM securitizations.

• The ITIN Trade-Off: While liquidity is limited, ITIN loans have performed extremely well historically when underwritten with higher down payments and conservative terms. The biggest constraint is secondary market depth, not credit quality.
• Pricing: ITINs are currently trading in the mid-to-low 7% yield range (350-357i/25cpr). For investors willing to diversify concentrations and standardize credit boxes, ITIN pools can deliver attractive, repeatable, excess yield.

Jumbo Loans: Where Size (and Underwriting) Matter Most

 The Jumbo market has remained strong and well bid, with Private Label Securities serving as the dominant exit strategy. Private label securitization has driven a tightening yield trend (except for the Liberation Day speed bump), from high 6% yields at the start of the year to the current low 6% level.

• Credit Scrutiny: Due to the inherent risk of larger loan amounts, lenders have maintained strict underwriting standards. Reliance Letters are now standard operating procedure for originators selling into the aggregators.
• The ARM Play: As fixed rates remain higher for longer, there has been a notable increase in the production of ARMs. With the current inverted yield curve, the initial ARM rate isn't much lower than a fixed rate, but many borrowers are wisely choosing to “marry the home and date the rate.” Non-Agency 5yr & 7yr Hybrids are currently trading in the low 200s Z-Spread area.

Scratch & Dent: Finding Diamonds in the Flawed

 The Scratch & Dent (S&D) market mirrors the overall tight supply/strong demand dynamic. With overall production down, demand for S&D remains strong, and the spread to other mortgage credit products has converged and is significantly tighter than historic levels.

• The Trend: S&D yields are currently in the low 7% area, and inside 7% for large pools. For comparison, new production Non-QM is trading at just inside 6.5% yield.
• Pricing Shift: We’ve seen a remarkable increase in pricing for S&D: from the low 80s in 2023, to the high 80s in 2024, and now the low/mid 90s in 2025. For loans with truly serious flaws, yields are in the 9% range.

The table below reflects our observations from S&D trading through Q3 2025. It is important to note that while the almost $2.5 billion of trading volume makes RAMS the largest trader of S&D loans, it represents less than 7.5% of our overall trading volume through Q3 2025.

Second Liens: The Highest Priced Loans

 Closed-end second lien loans behind below-market interest rate agency first liens are perhaps the highest priced loans we see in the market. The positive pricing is, however, running headlong into a California complication: Assembly Bill 130.

Assembly bill 130 is a new law that requires servicers under a "penalty of perjury" to attest to complete servicing records before foreclosing on even the most seasoned "Zombie" seconds.

• The Impact: This law has severely impacted the price of seasoned second lien loans in California, as many investors believe servicers will be unwilling to sign anything under penalty of perjury, or that the cost to do so will become prohibitive. For now, the complexity is putting a major haircut on the price of seasoned, California, second lien paper. New production bids are coming with trades stipulations, but no material price hit to the paper.

DPA Seconds

 We have helped develop a consistent market for Down Payment Assistance (DPA) Second Liens. As long as the loans are not forgivable and carry market interest rates, the price today is in the low-to-mid 70s, subject to the seller providing up to 3 years of default protection.

NPLs & EBOs: Trading Distress for Discounts

 The rising presence of non-performing loans (NPLs) in current offerings reflects a confluence of structural and economic factors: persistent inflation, affordability strain, and growing insurance burdens. Borrower stress is most acute in FHA and VA portfolios, but even conventional assets are beginning to show an increase in defaults.

Non-Performing Loans (NPLs)

 NPL investment remains a “niche” business. Loan type, size, geography, default status, and property value are all critical variables that make an NPL interesting to one buyer and of no value to another.

• Foreclosure Timeline Changes: Fannie Mae recently released new foreclosure timelines for the first time since 2019. The largest increase in projected time to foreclosure sale was in North Carolina (up 9 months). There were significant decreases in foreclosure timeline in New Jersey (down 24 months), New York (down 15 months), and Oregon (down 11 months).

GNMA Early Buyouts (EBOs)

 HUD Mortgagee Letter 2025-14 went into effect on October 1, 2025, and is expected to dramatically impact modifications. The financial benefit mortgage banks have been deriving from re-delivery will decline sharply as borrowers are required to complete a trial plan before the permanent plan takes effect and borrowers are only eligible for one modification every 24 months.

So, why will this lead to more EBO sale activity?

1. If there are fewer modifications, servicers will need to look at EBO sales to manage their delinquency ratios; and
2. Not all investors rely on re-performance and re-delivery to manage their portfolios and generate yield. We expect this will lead to an increase in EBO trades from sellers to buyers that are happy to hold to maturity any loans that reperform.

We will be monitoring EBOs closely as we move into Q4 2025 and beyond. We encourage you to talk with us about evaluating your EBOs and planning your strategy now.

As we close this Update, we want to underscore what sets RAMS Mortgage Capital apart: deep expertise across whole loans and mortgage-backed securities, paired with exclusive access to nonpublic trade data. Our proprietary analytics are not only sophisticated - they’re actionable, enabling clients to move from data to decisions with speed and precision. This is the foundation of our Whole Loan Evaluation & Mark-to-Market Services.

In today’s dynamic market, understanding the true value of your loan portfolio isn’t just prudent—it’s a strategic advantage. RAMS specializes in pricing complex and illiquid assets, including non-QM, construction, and reverse mortgage loans, where transparency is limited. Our loan-level valuations and scenario modeling support asset sales, risk management, financial reporting, and investor communications. Whether your needs are daily, weekly, or monthly, our services scale to meet them. Year-to-date, we’ve evaluated over $530 billion in loan assets, helping institutions stay agile and ahead of the curve.

We’re grateful for the trust our clients place in us to support their most critical trades and evaluations. With a strong Q4 ahead, we look forward to continuing to deliver clarity, confidence, and results.

Thank you - we appreciate your business.