A Popular Mortgage-Bond Trade Is Losing Its Appeal as Rates Keep Rising
- Bundled non-performing, re-performing loans taking a hit
- ‘Scratch-and-dent’ are largest segment of private-label RMBS
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One of the most popular mortgage-bond trades since the financial crisis is going out of fashion as rising rates punish down-on-their-luck borrowers.
So-called “scratch and dent” mortgages -- which are tied to borrowers that fell behind or began repaying their debts after a default -- accounted for the largest piece of the U.S. residential mortgage-backed securities market without government backing over the last decade.