As the mortgage market continues to shift in the face of evolving borrower needs and a dynamic economic landscape, non-qualified mortgage (non-QM) and alternative lending remain crucial avenues for capital deployment and investment growth.
One way to view this market is to take a look at both the origination issuance and securitization of the loans, including the packaging and selling of the loans to investors. This can be viewed in three major segments: non-QM, debt service coverage ratio (DSCR) and automated underwriting system (AUS) loans.
To define terms, non-QM are often quality loans that are ineligible to be purchased by the government-sponsored enterprises or federal government. DSCR are a type of non-QM loan often used by investors where the loan is secured by the expected cash flow produced from the property. AUS loans are eligible to be sold to the government-sponsored enterprises but have been packaged into private mortgage-backed securities.
This snapshot reflects investor confidence in these products. It also offers a glimpse into how lenders are positioning themselves in the increasingly segmented and competitive mortgage lending space.
Maturing market
In total, the market witnessed approximately $15.91 billion in securitizations across these three major segments for the first quarter 2025. This is gleaning presale reports from financial services companies such as Fitch Ratings, Kroll and S&P 500.
Of this, non-QM securitizations led the way with $12.2 billion, followed by DSCR with $2.24 billion and AUS with $1.46 billion. Of course, many non-QM transactions contain DSCR loans, so in total DSCR is significantly larger than noted.
This total showed a growth rate of 48.5% in the first quarter of 2025 versus the first quarter of 2024. This distribution underscores the continued strength of non-QM loans, which primarily use bank statements as income verification for self-employed creditworthy borrowers.
“With the rental market remaining strong, and more borrowers turning to real estate as an inflation hedge, expect DSCR issuance to grow even further.”
The composition of these issuances also reveals a notable diversification in originators and issuers, from major financial institutions like Morgan Stanley and J.P. Morgan to specialized non-bank lenders such as Angel Oak Mortgage Solutions and LoneStar Financial.
According to this snapshot, the top issuers by volume include Annaly Capital Management with $2.54 billion in securitizations, all of which were non-QM including DSCR. This aligns with Annaly’s strategic focus on alternative credit and its ongoing expansion into risk-adjusted higher-yielding mortgage opportunities.
Verus Mortgage Capital issued $1.71 billion, driven largely by DSCR-backed securitizations worth $515 million. This emphasis highlights Verus’ alignment with investor demand for income-generating rental properties, particularly in an environment of elevated mortgage rates and high rental yields.
PIMCO Investment Management came in third in this exercise with $1.08 billion. PIMCO continues to be a dominant force in the non-agency mortgage space. Its first quarter issuance was entirely non-QM, a sign of ongoing confidence in the credit performance of non-traditional borrowers such as self-employed individuals, gig economy workers and others with complex income streams.
Other noteworthy players in these segments included Angel Oak Mortgage Solutions ($938 million, all non-QM) and CrossCountry Mortgage ($942 million, also all non-QM). This affirms their positions as key players in the alt-credit space.
Caliber Home Loans issued $947 million, with a sizable portion ($240 million) in DSCR loans. This hybrid strategy showcases its diversified product offering. J.P. Morgan Chase ($705 million total) had a balanced mix, issuing $333 million in non-QM and $373 million in DSCR, signaling a broader appetite for both asset classes.
Secondary focus
The DSCR loan category, primarily targeting real estate investors and rental property owners, saw a notable uptick with more than $2.24 billion in total issuance. DSCR loans are particularly appealing in a high-rate environment, as they focus on property income rather than borrower income.
Apart from Verus and Caliber, Nomura Holdings ($301 million), Provident Funding ($365 million) and PennyMac ($347 million) were key contributors, indicating both bank and non-bank interest in this growing segment. New York Mortgage Trust (NYMT) and Chimera Capital added a combined $555 million, reinforcing the notion that real estate investment trusts (REITs) continue to see DSCR loans as stable income-producing assets.
Though smaller than the other two categories, AUS-based issuance still accounted for $1.46 billion. These loans typically are agency eligible but are securitized privately — often due to loan size or occupancy restrictions, such as residences that are investment properties or second homes.
TPG Angelo Gordon led the AUS space with $423 million. Other contributors include Bayview Asset Management ($325 million), PennyMac ($347 million) and NYMT ($267 million). These figures for this segment of loans reflect a healthy appetite for prime credit risk and are possible due to the high loan level price adjustment fees charged by Fannie Mae and/or Freddie Mac.
One observation in this snapshot is the wide range of participants — from household names to niche companies — all issuing in one or more of these categories. Wall Street firms such as Morgan Stanley, J.P. Morgan, Citibank, Goldman Sachs and Nomura continue to play selectively in this space, using their structuring and distribution capabilities to package loans originated by smaller lenders.
Non-bank lenders, such as Angel Oak, CrossCountry and Rocket Mortgage, dominate the origination side and are increasingly moving down the value chain into securitization, seeking better execution and capital recycling. Private equity-backed companies and REITs, including Chimera, and Annaly, are leveraging securitization not just as a funding mechanism, but also as a yield-enhancing strategy for their investors.
Future trajectory
So, what key trends can people in the mortgage business or investors expect for the rest of this year? With the rental market remaining strong, and more borrowers turning to real estate as an inflation hedge, expect DSCR issuance to grow even further.
As traditional borrowers face tighter underwriting and income documentation hurdles, non-QM loans will remain central to lender strategies, especially as they refine risk models and improve loan performance tracking. Though smaller in volume, AUS loans can become more prominent as LLPAs continue to be high, allowing private label execution to compete with agency pricing.
The continued participation of large institutions suggests confidence in the liquidity of these instruments. Securitization remains a key exit strategy for originators, as many institutional investors prefer mortgage-backed securities to residential whole loans.
The first quarter data reveals a maturing non-agency mortgage market with increasing specialization. Each product type — non-QM, DSCR and AUS — serves a distinct borrower and investor profile. As the broader macroeconomic environment evolves, this segmentation allows lenders and investors to tailor their risk exposure and returns more precisely.
