Research & Market Intelligence
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The cycle in this framework is the gradual incorporation of climate-driven ownership costs into housing valuations. The turning point is the moment indicators deteriorate enough to prompt investors and lenders to question collateral and credit performance. When we first built this methodology (late 2020 / early 2021), we estimated the repricing cycle would take roughly 7–10 years to unfold.
Our 120K micro-market impact estimates were aggregated to the MSA level and ranked into quintiles by projected home price depreciation risk. The top quintile, the Riskiest 20%, is the group we expected to materially underperform over the cycle. The remainder is the Rest of Market shown in blue across the charts.
We believe the cycle began around 2022, placing us roughly four years in. Divergence in leading indicators appeared as early as 2022, followed by widening gaps in coincident and lagging indicators. The rate of deterioration is accelerating in the riskiest markets.
At the current pace a repricing could begin as early as 2026–2027, with our trade window extending through mid-2029. We believe this window is likely to capture the bulk of the repricing we are targeting.
We did not forecast precise year-by-year paths, but ex-post results are directionally and statistically consistent with the original work. The highest-risk MSAs have materially underperformed across insurance rate change, months of supply, home price index, and borrower distress.
| Type | Source |
|---|---|
| Months supply | Zillow |
| Home Price Index | Zillow |
| Delinquency Rates / Troubled Loans | Freddie Mac (STACR) |
| Insurance Rates | Keys/Mulder |
| NFIP Insurance rate changes | FEMA |
| Matching CBSA codes/names | US Census |
Informational use only. This dashboard is confidential and provided to institutional subscribers for general informational purposes. Nothing herein constitutes an offer to sell or solicitation to buy any security, product, service or fund, nor does it constitute financial, investment, legal, accounting or tax advice or a recommendation of any investment or transaction. Any offering of securities would be made only through a confidential private placement memorandum and related subscription documents. DeltaTerra Investments LLC is an SEC Exempt Reporting Adviser.
Forward-looking statements. Statements regarding cycle timing, repricing windows, and projected home-price depreciation are forward-looking estimates based on DeltaTerra's proprietary models and assumptions as of the date hereof. They are not guarantees of future performance and are subject to uncertainties (including evolving climate science, insurance market dynamics, borrower behavior, and macroeconomic conditions) that could cause actual results to differ materially. DeltaTerra does not undertake to update any information or forward-looking statement.
Information accuracy. Certain information has been obtained from published and non-published third-party sources (see Data Sources above). While believed to be reliable, this information has not been independently verified by DeltaTerra, and no representation or warranty, express or implied, is made as to its accuracy or completeness. The methodology used to aggregate and analyze data may be adjusted periodically, and the results of previous analyses may differ as a result. While this summary highlights important data, it does not purport to capture all dimensions of risk.
Confidentiality. The contents of this dashboard are confidential and proprietary and may not be copied, disclosed, distributed, or used in any way without the express prior written permission of DeltaTerra Investments. This material is intended only for persons resident in jurisdictions in which such distribution is permitted by applicable law. © 2026 DeltaTerra Investments. All rights reserved.
Starting from our asset-value exposure model covering 89M homes (96% of single-family stock), we segmented the country into ~120,000 micro-markets and, using a first-principles NOI/cap-rate approach, estimated the home-price pressure each would feel as climate-related ownership costs (primarily rising insurance premiums) are reflected in valuations. Those micro-market estimates were aggregated to ~400 MSAs and ranked into quintiles by projected home-price depreciation risk. The top quintile, the Riskiest 20%, is the group we expected to materially underperform over the cycle; the remaining 80% forms the Rest-of-Market benchmark shown across the charts below.
The Notional Principal Contract (NPC) technology we designed to short CRT bonds embeds a monthly option to collapse any given trade at the prevailing bond price — without having to purchase the security. The initial option level is set at the month-end price provided by a leading third-party price provider, the Intercontinental Exchange (ICE).
When we exercise the option to settle a trade mark-to-market, even a modest spread widening (e.g. 75–150 bps) produces positive returns in the near term. Larger dislocations can generate multiples of invested capital, even in the absence of expected bond defaults.
Current CRT credit spreads are at or near all-time tights, driven primarily by supply-and-demand dynamics rather than underlying risk fundamentals. Hundreds of dedicated and crossover credit investors compete for a limited pool of issuance, while the seller base (Fannie + Freddie) has materially constrained new supply — prioritizing balance-sheet optics and capital positioning ahead of potential privatization over CRT issuance.
In our view, this disconnect reflects technical scarcity and policy-induced distortion, not a durable improvement in mortgage credit risk. In October 2025, Fannie Mae issued a BB-rated “B1” bond at SOFR+185; buy interest at that historically tight level exceeded the $114M offered by many multiples.
Hypothetical performance. Bond prices, profit and loss figures, and cumulative net returns shown across the Thematic Scenarios, Market Scenarios, and CRT Target Screens are hypothetical and based on DeltaTerra's proprietary models and assumptions as of the date hereof. They reflect scenario analyses under stated home-price appreciation paths and spread-widening assumptions, are not guarantees of future performance, and do not represent the results of actual trading. Actual results may differ materially.
Forward-looking statements. Statements regarding cycle timing, repricing windows, and projected home-price depreciation are forward-looking estimates subject to uncertainties (including evolving climate science, insurance market dynamics, borrower behavior, and macroeconomic conditions) that could cause actual results to differ materially. DeltaTerra does not undertake to update any information or forward-looking statement.
Informational use only. This screen is confidential and provided to institutional subscribers for general informational purposes. Nothing herein constitutes an offer to sell or solicitation to buy any security, product, service or fund, nor does it constitute financial, investment, legal, accounting or tax advice or a recommendation of any investment or transaction. Any offering of securities would be made only through a confidential private placement memorandum and related subscription documents. DeltaTerra Investments LLC is an SEC Exempt Reporting Adviser.
Information accuracy. Certain information has been obtained from third-party sources. While believed to be reliable, this information has not been independently verified by DeltaTerra, and no representation or warranty, express or implied, is made as to its accuracy or completeness. Methodologies may be adjusted periodically, and the results of previous analyses may differ as a result.
Confidentiality. The contents of this screen are confidential and proprietary and may not be copied, disclosed, distributed, or used in any way without the express prior written permission of DeltaTerra Investments. © 2026 DeltaTerra Investments. All rights reserved.
The material in this document (“Presentation”) is for general informational purposes only. This Presentation is confidential, is intended only for the person to whom it has been delivered, and may not be shown, copied, transmitted or otherwise given to any other person without the prior written consent of DeltaTerra Investments (“DeltaTerra”). This information has been provided pursuant to a mutually agreed non-disclosure agreement between DeltaTerra Investments LLC and you.
Nothing in this Presentation shall constitute financial, investment, legal, accounting or tax advice, or a recommendation of any investment or transaction, or a representation that any investment or transaction is appropriate for you, or otherwise constitute a personal recommendation or advice. If such advice is required, the services of a competent attorney, accountant or other professional should be engaged.
Certain statements contained herein are forward looking statements and words such as “anticipate”, “estimate”, “expects”, “projects”, “intends”, “plans”, “believes”, “will”, and words and terms of similar substance typically indicate forward looking statements. All forward looking statements represent expectations regarding future events as of the date hereof, based on information available (but not necessarily all such information which might be reasonably available) and on certain assumptions and estimates, and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking estimates provided in this Presentation. Additional information, including additional statistical data and/or further descriptions of proposed transactions, may be provided subsequently, but DeltaTerra does not undertake to update the enclosed information or any forward-looking statement made herein. Such forward looking statements are only estimates or predictions based on assumptions regarding the industry and other matters and are not historical facts. Such forward looking statements are not guarantees of future performance and may not be relied upon.
This Presentation does not constitute an offering of any security, product, service or fund. Any investment in a security, product, service, or private fund, is speculative and involves a high degree of risk. No reliance may be placed for any purpose whatsoever on the information contained in this material or on its completeness. This Presentation does not purport to contain all of the information that the recipient may require.
This Presentation is only intended for and will only be distributed to persons resident in jurisdictions in which such distribution is permitted by applicable law. No representation or warranty, express or implied is given by the DeltaTerra or its general partner’s / manager’s advisers or any other person as to the accuracy or completeness of the information or opinions contained within this Presentation and no responsibility or liability is accepted for such information or opinions.
Certain information contained herein has been obtained from published and non-published sources prepared by other parties, which in certain cases has not been updated through the date hereof. While such information is believed to be reliable for the purpose used herein, DeltaTerra does not assume any responsibility for the accuracy or completeness of such information and such information has not been independently verified by DeltaTerra.
Past performance is not necessarily indicative of future results. There can be no assurance that the objectives in this Presentation will be realized or that an investor will not experience losses. While this summary highlights important data, it does not purport to capture all dimensions of risk. The Fund’s strategy involves significant risks including short position risk, interest rate risk, market volatility risk, liquidity risk, and regulatory risk. The methodology used to aggregate and analyze data may be adjusted periodically. The results of previous analyses may differ as a result of those adjustments. DeltaTerra has made assumptions that it deems reasonable and used what it believes to be the best information available in producing calculations and figures.
1. No Market Repricing Scenario. This scenario assumes no climate shock for all US housing markets. Current climate costs are held static and not projected to increase in the future and there is no capitalization of climate costs into future property valuations. Cumulative Returns are solely a function of national home price appreciation/depreciation, which leads to varying expectations for bond principal losses and total cash flow value that are modeled through the securitization capital structure in conjunction with behavioral models for borrower behavior in the given home price scenario. Scenario returns assume trade settlement occurs at the maximum term for each contract at the discounted fair market value of the reference security in that environment.
2. Contained Market Repricing Scenario. This is a thematic scenario that assumes capitalized climate costs will increase in housing markets with elevated climate risk (“exposed markets”). Exposed markets are identified by DeltaTerra based on insurance, climate and natural hazard analysis using proprietary and third-party data. The CRT bonds in this scenario have 18.7% of underlying mortgage balances in exposed markets. The increase in capitalized climate costs applied to exposed markets in this scenario is calibrated to the IPCC’s intermediate trajectory for climate change (known as IPCC RCP 4.5) and results in home price declines in exposed markets of approximately 25% on average (in addition to any national home price appreciation/depreciation). Home price appreciation/depreciation leads to varying expectations for bond principal losses and total cash flow value that are modeled through the securitization capital structure in conjunction with models for borrower behavior in the given home price scenario. Scenario returns assume trade settlement occurs at the end of December 2027 for each contract at the discounted fair market value of the reference security in that environment.
3. Accelerated Market Repricing Scenario. This is a thematic scenario that assumes capitalized climate costs will increase in housing markets with elevated climate risk (“exposed markets”). Exposed markets are identified by DeltaTerra based on insurance, climate and natural hazard analysis using proprietary and third-party data. The CRT bonds in this scenario have 18.7% of underlying mortgage balances in exposed markets. The increase in capitalized climate costs applied to exposed markets in this scenario is calibrated to the IPCC’s worst-case trajectory for climate change (known as IPCC RCP 8.5) and results in home price declines in exposed markets of approximately 35% on average (in addition to any national home price appreciation/depreciation). Home price appreciation/depreciation leads to varying expectations for bond principal losses and total cash flow value that are modeled through the securitization capital structure in conjunction with models for borrower behavior in the given home price scenario. Scenario returns assume trade settlement occurs at the end of December 2027 for each contract at the discounted fair market value of the reference security in that environment.
Portfolio Scenarios relate to the Trade 1 Portfolio Summary (the initial trade for DeltaTerra Partners LP – Series D-1), comprised of credit default swaps on 8 Credit Risk Transfer Bonds. Cumulative Returns are based on transaction prices as of 29 May 2026. Cumulative returns are hypothetical and assume every position is settled at the end of December 2027. All scenario returns are presented net of management fees (1.5% annually), carry (15% above return of capital) and origination fees (1%). The Management Fee is not charged on NAV, but applied to balances reserved to purchase protection, which decline over time as protection is purchased.
Thematic scenarios are used by DeltaTerra to estimate security and portfolio level valuation sensitivity to changing climate risk capitalization in property markets and estimate hypothetical returns for trading strategies based on this. Scenarios are developed by applying thematic analytics which include climate and insurance factor modeling, in combination with mortgage collateral performance projections and capital structure analysis. The primary specifications for scenario generation are described below.
Climate cost expectations: Determining the property insurance cost expectations delta by estimating the difference between a) current climate costs (using current insurance premiums) by census tract area and b) rational expected costs based on scientifically derived physical damage expectations for each major hazard type for each census tract area.
House price depreciation: Capitalizing the estimated climate costs into residential property valuations to estimate projected rational property valuations using the fundamental real estate valuation framework: Asset Value = Net Operating Income (NOI) / Cap Rate.
Mortgage performance: Forecasting expected losses resulting from climate cost and house price depreciation for mortgage pools using economic and loan-level performance data to estimate prepayment and default probabilities.
Security sensitivity: Estimating the intrinsic value sensitivity of a given security to a pool’s mortgage performance projections by modeling prepayments, defaults and related cashflows through the capital structure.
Certain information provided herein reference targeted or projected returns. These targeted returns are forward-looking estimates and do not represent actual performance. There is no guarantee that such performance will be achieved, and actual results may vary substantially or result in total loss of capital.
Material Risks and Limitations: Targeted returns do not account for: (1) liquidity constraints that may prevent position establishment or exit at favorable prices; (2) potential for credit spreads to tighten further rather than widen, resulting in mark-to-market losses and potential total loss of premiums paid; (3) interest rate volatility affecting bond valuations independent of credit performance; (4) regulatory changes to GSE credit risk transfer programs; (5) counterparty credit risk; (6) correlation risk if climate impacts do not materialize as projected or affect different loan pools than anticipated; (7) basis risk between selected reference bonds and actual climate-exposed loan performance; and (8) the possibility that delinquency rates do not rise as forecast, resulting in minimal bond price decline.
Forward-Looking Nature: The targeted returns are based on DeltaTerra’s proprietary climate risk models and assumptions about future housing market performance in climate-exposed regions. These projections involve significant uncertainty and are subject to change based on evolving climate science, insurance market dynamics, borrower behavior, and macroeconomic conditions. Forward-looking statements are not guarantees of future performance and may not be relied upon.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is no guarantee of future results.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.
Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Market Scenarios relate to the Trade 1 Portfolio Summary portfolio (the initial trade for DeltaTerra Partners LP, Series DT-1), comprised of 8 CDS positions with the average structural and underlying reference bond characteristics summarized on the Trade 1 Portfolio Summary tab. Cumulative Return and P&L scenarios are based on market pricing and estimated trade execution costs at the Last Updated Price date. Net returns are hypothetical and assume every bond is settled at the respective semi-annual Settle Date at the Spread at Settlement level and that invested capital held in reserve for funding synthetic bond spreads to each bond’s call term (the unspent premium) is returned early as of the Settle Date (the scenarios use quarterly settlement dates for illustrative purposes, note however that the strategy has a contractual option to settle trades shortly after any month end during the CDS term).
Market scenarios are used by DeltaTerra to estimate security and portfolio level performance sensitivity to changes in bond price and credit spread volatility and estimate hypothetical returns for trading strategies based on this. Market Scenarios present an alternative set of holding periods, return assumptions and outcomes to Thematic Scenarios. Market Scenarios are time sensitive ‘spread driven’ outcomes rather than ‘thematically driven’ outcomes and do not model climate costs and related impacts house prices and mortgage performance effects unlike Thematic Scenarios. DeltaTerra believes Market Scenarios are important because spread widening itself is a monetizable outcome independent of whether Thematic Scenarios and climate-driven credit impairments are realized at a given settlement date. In this way the strategy is positioned to benefit from the structural tendency of credit markets to periodically reprice risk due to macro, policy, or other risk-off dynamics.
Information provided herein reference targeted or projected returns. These targeted returns are forward-looking estimates and do not represent actual performance. There is no guarantee that such performance will be achieved, and actual results may vary substantially or result in total loss of capital.
Material Risks and Limitations: Targeted returns do not account for: (1) liquidity constraints that may prevent position establishment or exit at favorable prices; (2) potential for credit spreads to tighten further rather than widen, resulting in mark-to-market losses and potential total loss of premiums paid; (3) interest rate volatility affecting bond valuations independent of credit performance; (4) regulatory changes to GSE credit risk transfer programs; and (5) counterparty credit risk.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Past performance is no guarantee of future results.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.
Hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.