Agency Kick-Outs Lead to Rise in Scratch-And-Dent RMBS Issuance

Increased loan putbacks from Fannie Mae and Freddie Mac have led to increased “scratch-and-dent loans” securitization issuance. These loans were returned to their originators for reasons like missing documentation, mortgage-insurance issues, or incorrect debt-to-income ratio calculations, and have subsequently found their way into non-agency RMBS pools. With spreads on all types of home-loan securities tightening, investors are eyeing this issuance for its yields and demand may continue to rise.

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