Rising Loan Balances Increase Prepayment and Delinquency Risks in Non-QM and HELOC Securitizations

Large loan balances are increasingly appearing in non-qualified mortgage (non-QM) and home equity line of credit (HELOC) securitizations, a trend that is introducing higher delinquency risks and faster prepayment speeds to these secondary markets.

According to a Bank of America Securities report published on April 14, 2026, loans with balances of $1 million or more are becoming more common in securitizations for loans that fall outside the parameters of the qualified mortgage definition.

The research indicates that non-QM issuers have been mixing in more large, full-documentation loans with higher credit scores, a profile typically associated with jumbo deals, while simultaneously tightening underwriting standards.

Growth in Loan Balances and Issuance

The shift toward larger balances is also evident in second-lien and HELOC securitizations. Between 2024 and 2025, the average loan size for these products increased from $88,000 to $95,000.

During the same period, the proportion of second-lien loan balances exceeding $200,000 rose from 22% to 25%.

These trends align with a projected increase in gross issuance for 2026. Bank of America Securities forecasts that gross issuance will rise to $241 billion in 2026, compared to $213 billion in 2025.

Performance and Delinquency Risks

The increase in loan size is linked to specific performance implications. Researchers from Bank of America Securities noted that larger loan balances are consistently associated with faster prepayment speeds and higher delinquency rates across various shelves and vintages.

Separate data from dv01, a subsidiary of Fitch Ratings, highlights a sharp increase in delinquency for securitized real estate loans outside Qualified Mortgage standards. In November 2025, the delinquency rate for loans at least 30 days past due climbed to 7.25%, up from a revised 6.47% in October 2025.

The November 2025 delinquency profile consisted of:

• A 2.92% share of loans 30 to 59 days past due.
• A 1.00% portion in the 60- to 89-day bucket.
• A 3.33% concentration of balances that were at least 90 days delinquent.

Total impairments, which include both past-due loans and modified mortgages, reached 7.69% in November 2025, representing a 78-basis-point increase over October 2025.

Regional and Credit Trends

Analysis of higher balance loans suggests that elevated delinquency rates are being driven by specific geographic regions. Delinquencies on large loans in Florida, Georgia, and Texas are currently elevated compared to other states providing significant collateral for non-QM trusts.

Credit scores also play a significant role in performance. Loans with original FICO scores between 660 and 700, categorized as near prime, are performing markedly worse than the broader cohort. Specifically, loans with original FICOs between 660 and 680 have seen delinquencies rise by over 200 basis points over a six-month period ending in April 2025.

the 30-59 day delinquency roll rates, which hovered between 15% and 23% from 2020 through 2023, increased by 280 basis points to reach 26.9% in November 2025.

Market Implications

While substantial borrower equity in financed properties may protect mortgage-backed securities investors from losses on seasoned collateral, rising delinquency rates can lead to lower valuations for underlying collateral pools.

This environment potentially increases extension risk for deals containing a higher volume of delinquent loans.

Regarding prepayment activity, dv01 reported a constant prepayment rate of 16.2 most recently, a decrease from the 18.4 CPR reported in the previous period.