Second-Lien RMBS Issuance Hits $24B, BofA Sees $41B for 2026

Second-lien and home equity line of credit residential mortgage-backed securitization issuance has reached $24 billion as of July 24, the highest through this point of the year since the Great Financial Crisis, Bank of America Securities said in its weekly securitization report.

That total is already close to last year's full-year figure of $29 billion. The analysts expect $41 billion of second-lien and HELOC securitization for all of 2026.

These loans accounted for 17.5% of all mortgage transactions last year, Benutech reported. That share continued into the first quarter at 17.3%, according to Attom Data Solutions.

The potential for more closed-end second and HELOC issuance remains high because of the elevated first mortgage rate environment, the BofA analysts said. From the low-rate 2020 and 2021 origination vintages, roughly $2 trillion of conforming mortgages carry rates below 4% and a current loan-to-value ratio around 40%. The analysts calculated that adding a second or home equity loan would keep the combined LTV under 75%.

HELOCs have traditionally been the domain of banks. The report points to a growing presence of non-bank originators. Credit unions are also increasing production and holdings of these loans, it said.

The AAA-rated tranche of new second-lien securitizations is now priced in a range similar to non-qualified mortgage paper, between 120 and 130 basis points, the report noted. The lower-rated tranches, AA through BBB, still offer a spread pickup versus non-QM. Non-QM credit curves are near their tightest historical levels, the analysts said.

Despite the subordinate lien status, the lower part of the closed-end second capital stack is better protected and offers greater spread pickups compared with equivalently rated non-QM tranches, the report said. Delinquency rates on second-lien and HELOC securitizations are lower than those on non-QM deals.

Across all non-agency issuance types, $53 billion came to market last week. The year-to-date total reached $145 billion. Non-QM issuance alone reached $62 billion so far in 2026, up from $57 billion at the end of June.

Spreads on agency mortgage-backed securities widened last week after the 10-year Treasury yield spiked on Thursday. The 10-year rose to 4.71% at one point before closing at 4.70%. Friday it stayed under that mark and closed at 4.68%. Monday's open was 4.65%. Spreads on agency MBS ended the week 5 basis points wider, the report said.

The analysts who authored the agency MBS section warned that spreads have started to leak slowly wider. They expect the trend to persist because of a combination of factors. "As such at 113 basis points, we are turning basis underweight, from neutral," the analysts said. Over the longer term a buy-on-dip opportunity may emerge. The risks appear elevated in the shorter term. Given "the slow leak," the BofA analysts do not see such an opportunity materializing near term.