The $2.1 trillion non-agency mortgage market faces a number of challenges due to weakness in the housing market and the broader economy. The combination of forced selling, tight credit, and uncertainty about credit ratings have combined to create an illiquid market that has pushed many bond prices far below their fundamental values.
Money manager BlackRock recently issued a special report on this topic. The article Residential Mortgage Update: The Non-Agency Mortgage Market defines the non-agency mortgage market, provides perspective and rationale for its recent underperformance, and summarizes their outlook for the sector. Please click on this link to view a copy of the report.