Private-label sets a furious pace to start 2022
A total of 10 new private-label securitization deals backed by more than 9,500 mortgages valued collectively at nearly $5.4 billion have already hit the market over the first few weeks of 2022, according to a new analysis by HousingWire.
The residential mortgage-backed securities (RMBS) deals are spread across the three major buckets of the private-label market — jumbo-loan, investment-property and non-QM deals. Jumbo loan securitizations dominated the pack so far in January, with a total of five deals backed by nearly 3,700 loans valued at $3.3 billion.
Next are private-label offerings backed by investment properties, with a total of three deals involving nearly 4,600 loans valued at $1.4 billion. Finally, there have been two non-QM deals to date, backed by about 1,250 mortgages valued at $674 million.
“There’s a rush to the door because everybody’s thinking about that expected March [Federal Reserve] rate hike,” said John Toohig, managing director of whole-loan trading at Raymond James. “A lot of issuers want to get their deals priced before we see rates move.”
The Mortgage Bankers Association is projecting that the Fed will boost short-term interest rates three times this year, and three times again in 2023. The fed funds rate is projected to jump to 2.5% by 2024, with the MBA predicting that the 30-year mortgage rate will hit 4% by the end of 2022.“For much of this year, I think we’re going to see (inflation) numbers in the high single digits … so the Fed has to respond,” said MBA Chief Economist Mike Fratantoni.
The issuers behind the jumbo-loan securitization deals year to date as of mid-January 2022, based on an examination of bond-rating agency reports, are as follows: Goldman Sachs; Guaranteed Rate; Rocket Mortgage (through its Woodward Capital Management affiliate); Redwood Trust (through its Sequoia program); and Wells Fargo. The securitization deals backed by investment properties through mid-January of this year were sponsored by Goldman Sachs; Blue River Mortgage III, a fund managed by global asset manager Angelo, Gordon & Co. LP; and Oceanview — a subsidiary of Oceanview U.S. Holding Corp.
We can expect even more private-label action in the weeks ahead, according to industry players.“The latest Federal Housing Finance Agency [FHFA] rule change that increases up-front fees for high-balance and second-home loans could reignite investor issuance later in 2022 as the private market steps up as a potential liquidity source for originators,” states a year-end report by digital mortgage exchange MAXEX.
Redwood Trust President Dashiell Robinson agrees. He said Redwood expects the recently announced higher loan fees set to take effect April 1 will drive non-agency origination volumes higher, “generally offsetting the projected decline from the higher conforming loan limits,” which now approach $1 million in high-cost counties around the U.S.
Robinson also said the new loan-level price adjustment for second homes “is a logical surrogate for the prior cap” on Fannie Mae’s and Freddie Mac’s purchases of second homes — a cap which was suspended last fall.
“[The loan-fee bumps] provides additional subsidy in a more predictable pricing fashion for origination,” Robinson added. “Overall, 2022 supply outlook industry-wide for non-agency RMBS is positive.”
MAXEX reports that a total of 17 issuers priced 89 jumbo deals in the private-label market in 2021 that were valued in total at nearly $52 billion — compared with 42 offerings by 13 issuers the prior year valued at $18.6 billion. The value of transactions backed by investment properties, including second homes, totaled more than $25 billion last year, according to data from Kroll Bond Rating Agency (KBRA) and MAXEX.
Finally, the two non-QM RMBS offerings in 2022 so far were sponsored by Ellington Financial Inc. and New Residential Investment Corp. — a real estate investment trust and affiliate of lender NewRez LLC. Non-QM mortgages include loans that cannot command a government, or “agency,” stamp through Fannie Mae or Freddie Mac and typically make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines.
“We just see the [non-QM] market overall growing, especially as the mortgage industry grapples with a slowdown in agency refinancing [volume because of rising rates] and more lenders turn their attention to the non-QM space,” said Manish Valecha, head of client solutions for Angel Oak Capital, an affiliate of Angel Oak Cos. — a major player in the non-QM market.
Dane Smith, president of Verus Mortgage Capital, another non-QM lender, said he expects total non-QM private-label issuance for 2021 to tally about $25 billion, with 2022 issuance forecast to grow to over $40 billion.
“While we do believe the [non-QM] market is extremely strong, we see the potential for volatility in the face of fed tapering and changes in interest rate policy,” Smith adds in a note of caution. “Despite the potential for increased volatility on the horizon, we believe the market is mature enough to digest higher issuance effectively and continue its growth.”
A recent report by the Urban Institute’s Housing Finance Policy Center shows the private-label market’s share of mortgage securitizations has increased gradually since the global financial crisis, growing from 1.83 percent in 2012 to 5 percent in 2019.
“In 2020 [as the pandemic took root], the non-agency share dropped to 2.44 percent and, as of September 2021, it stood at 3.79 percent,” the report states, noting Fannie and Freddie still dominate the mortgage securitization market with of a 96.21% share as of that date.
KBRA projects that 2022 private-label issuance will reach $132 billion, up from an estimated $115 billion for 2021. That estimate came prior to FHFA announcing its loan-fee increases. RMBS issuance, for the purposes of the KBRA report, includes all post-crisis prime, non-prime and credit-risk transfer transactions sponsored by government-sponsored enterprises (GSEs) Fannie and Freddie.“It feels as if the FHFA under [President] Biden’s administration is going to be more focused on first-time homebuyers, minority homeowners, kind of getting back to the roots of the GSEs purpose of homeownership,” Raymond James’ Toohig said. “It’s not your second home, it’s not your investor property, it’s not your high-balance loan, it’s not your mansion.
“I would bet in 2022 you’ll see more of a move in that direction, which is going to push more deals into the private-label market.”
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