We hope your 2022 is off to a great start!

2021 was a very busy year with record volumes and profitability for mortgage participants.  2022 has started off significantly different than 2021 with a big sell-off and a back-up in rates. We have a 40 year high in inflation and strong jobs reports leading into anticipated Fed tightening and tapering by the end of Q1. Refinance volume has gone away and overall production volume is down. Margins are tight and we are seeing a good number of originators implement resizing and lay-off plans. More job cuts and consolidation seem likely, especially if we trend to higher rates, and production volumes continue to slow as we shift to a purchase-oriented origination market. There is optimism we are nearing the end of the pandemic – so we do have some positive news!

It was already a challenging end to the year for publicly traded mortgage companies. All mortgage companies that went public in 2021 had lower stock prices than IPO prices.

Recent market sell-off –

Date	FNCL 2	G2SF 2
Dec 1, 2021	100.148	101.273
Jan 3, 2022	99.109	100.336
Feb 1, 2022	97.367	98.688
Today	94.922	96.625
Change	-5.226	-4.648

Current mortgage rates:

30yr Conforming – 4.12%

30yr FHA – 3.68%

30yr Jumbo – 3.625%

30yr Non QM – 4% (@102) 

In early 2022, GSE’s announced upfront fees for certain high balance and second home loans. The fees for these loans will increase between 0.25% and 0.75%, tiered by loan-to-value ratio. Upfront fees for second home loans will rise between 1.125 percent and 3.875 percent, also tiered by loan-to-value ratio. FHFA said the new fees will go into effect for deliveries and acquisitions beginning April 1, 2022. The long lead time is intended to minimize market and pipeline disruption.

Mortgage servicers are under fire from the DOJ, CFPB, and State AGs due to concerns related to implementation of modification plans and if loans to military veterans and families are being serviced in compliance with agency servicing guidelines. The good news for mortgage servicers is mortgage servicing rights (MSR) values and multiples for production originated and serviced are rising for the first time since the start of the pandemic and big drop in rates in March 2020.

We seem to be toward the tail end of the forbearance period.  There are roughly 800,000 borrowers that will be exiting forbearance plans.  We remain focused on whether foreclosures will increase dramatically or will we see another round of modifications, extensions, and deferrals. 

There continues to be lots of cash and appetite for yield and assets, but prepayments are slowing, and lower coupon loans are getting hit very hard, especially in the Prime Jumbo and Non-QM sectors.

 Non-QM

After the pandemic hit followed by the market liquidity crash of 2020, the Non-QM market charged to higher and higher price levels with most of 2021’s Non-QM production feeding what seemed like an insatiable Private Label Securities (PLS) appetite. Pricing peaked in Q3 2021 at around 106.50.  We marketed 45 pools for roughly $2BB in 2021. Yearend positioning saw swaps widen and rates increase leading many sellers to hold off hoping for better times in 2022.   Rate sheets with increases to coupons were not in lock step with secondary market pricing.  Better times have failed to materialize so far in 2022. Most Non-QM buyers have seen their excess spread securitization execution deteriorate as AAA bonds have compressed due to an abundance of supply, rising rates, and wider spreads.  We’ve seen a bifurcation of Non-QM pricing in the mid to upper 4 coupons.  The lower coupons aren’t favorable to the levered structure PLS deals as the lack of coupon doesn’t adequately contribute enough excess spread to subordinate, or credit enhance, the securitization structure most firms were using in 2021.  We are having success selling lower coupons at par to banks at high 3% to low 4% unlevered yields.  We’ve already marketed 39 Non-QM pools for just over $2BB so far in 2022.

Price and execution have been impacted for both consumer and business purpose Non-QM loans. DSCR rental loans, with 3 or 5 year prepay penalties, have seen pricing go from a 106 handle in 2021 to 102 handle on an ~ $100MM sale in early February (and even lower for sub 4.5% coupons).  Another affected Non-QM sector is Community Development Financial Institution, or CDFI, a federally chartered financial institution with certain ATR exemptions and safe harbors for mortgage loans due to their community development focus.  These loans were also being sold into PLS until Q3 2021 when the rating agencies changed their view and decided to no longer rate as “AAA” the bonds backed by this collateral.  This change altered pricing more than 2 points, from mid 106s to high 103s – 104 area. Given the high gross WACs, high FICOs, and low LTVs, coupled with strong performance, we have been selling large blocks of this paper to bank buyers.

After the liquidity crunch of early 2020 we continue to be surprised to hear how much Non-QM production was originated without being hedged. These price drops and market volatility have been especially painful for those market participants. 

Below is a snapshot of the change in Non-QM rate sheets since Q3 2021:

  Consumer Non-QM

Date	Rate	Price
Nov-21	3.750	102
Dec-21	3.875	102
Jan-22	4.000	102
Feb-22	5.250	102

  Business Purpose Non-QM

Date	Rate	Price
Nov-21	4.125	102
Dec-21	4.125	102
Jan-22	4.250	102
Feb-22	5.400	102

Looking at PLS Issuers Rate Sheets, it’s worth noting 4.5% is the lowest coupon offered today as compared to 3% back in Q3 2021.

Prime Credit Jumbos

As we all know,  most of 2021 was a vibrant, robust, market for prime credit jumbos and PLS issuance. Volumes reflected this exuberance with all-time highs not seen since the early 2000s. However, with an oversupply of PLS issuance in Prime Jumbo, Agency Second Homes & Investors and Non-QM spreads began to widen in the latter part of 2021.  Many large mortgage originators are selling their origination “best-efforts” due to thinner margins and more challenging hedging techniques that come with non-bank jumbo loans. Bulk Jumbo execution has been hit hard as coupons and investment yields have increased. PLS execution is not currently attractive as the deal pass-through coupon has increased 1 to 1.5 points on AAA senior bonds.  Investor appetite has also waned for the time being. In the bulk whole loan market, low 3% coupons are trading in the 97 area (high 3% bond equivalent yield) with new coupons being set in the upper 3 to 4% coupon range.

Ginnie Mae EBOs

Maybe it was the rise in interest rates from the first day of the year, or some combination of reasons, but we’ve marketed over $2BB in Ginnie Mae EBOs so far this year with several new deals under evaluation for potential sale.  Through this process, we identified several interesting topics.

What is the “real cost” of servicing GNMA EBOs?

Most contract servicers apply a fee schedule with a fixed monthly fee based on delinquency status.  In addition, there are fees if a loan is in bankruptcy, foreclosure, or REO.  Finally, more fees are added when loans are modified or resolved.  On Ginnie Mae EBOs, this monthly cost ranges from $115 per month to $220 per month depending on status.  Then, for special servicers, in addition to the aforementioned monthly servicing fees, there can be success fees of 1% for completing a permanent modification, executing a short sale, or achieving certain settlement results.  The base fees are applied on a per loan basis without regard to loan size.  The smaller the loan balance the greater the impact of these servicing costs.  In determining a “sale vs. hold” strategy, Investors need to understand and apply the correct cost.

With the rise in interest rates, can Ginnie Mae EBO Sellers still achieve prices of at least par plus refund of all advances, including net-interest advance?

There continues to be real demand for Ginnie Mae EBO pools, but Investor opinions on price can vary significantly from offering to offering.  Almost always, but especially now, there is no substitute for a competitive auction.  We have seen the same buyers offer a premium for one pool and on the next pool they are 3 points back of par.

In general, we are seeing prices of par or premiums for offerings.  In some cases, sellers and buyers are agreeing on a trade of a subset of loans vs the entire offering where seller’s price goal is a premium to par.  On top of the price, we are still seeing refund of all advances.  We believe holders of Ginnie Mae EBOs have a window right now to sell and recover all of their advances with no cash outlay, but the window is not as wide today as it was 60 days ago.

What is the impact of a change in projected re-performance and re-pooling rate on a Ginnie Mae EBO Portfolio?

The re-performance and re-pooling assumption in conjunction with lower discount rates drove up pricing of EBOs in the last half of 2021. In a rising interest rate environment, re-performance and re-pooling assumptions have less impact on EBO value because the securitization price assumption is lower.  There is less variance between a foreclosure and liquidation outcome and a re-performance and re-pooling outcome.  Also, and this may be the result of year end analysis of actual results, we are seeing several buyers reducing their re-performance and re-pooling assumptions.  We performed a sensitivity analysis of several EBO Portfolios and a drop in re-performance and re-pooling percentage from 90% to 50% can result in a drop in price between 3 and 4 points depending on WAC.

Scratch & Dent

Scratch & Dent remains a very active sector for us. In 2021, we marketed 1,418 portfolios with 12,495 loans for more than $3.8BB from 404 unique sellers. We settled a record 153 portfolios in December alone!  We think this is a sector insurance companies and banks should consider because they can accumulate hundreds of millions of dollars in scratch & dent loans at attractive yields if they are willing to cobble their portfolio together from a large number of smaller trades.  In 2021, we marketed 1,214 portfolios comprised of less than 10 loans and only 43 portfolios had a UPB greater than $20MM.

We don’t anticipate the volume of scratch & dent offerings to slow down in 2022.  Inside Mortgage Finance highlighted that GSE repurchases out of Fannie Mae and Freddie Mac MBS in the Q3 2021 was up 16.8% over Q2 2021 and year-to-date Q3 2021 was up 80% from Q3 2020.  We have marketed 292 scratch & dent pools for $872MM so far this year.

Like most sectors, pricing throughout 2021 remained strong.  Of all scratch & dent pools marketed, 84% traded in the 90’s with 51% in the high 90’s. As rates edged higher, we have seen some softening in pricing, especially in lower coupons and higher LTVs. We expect this to be the case going forward if rates continue to edge up.  So far in 2022, 88% of pools have traded in the 90’s, but only 14% have been in the high 90’s.  Sub 3.5% GWAC made up 89% of the scratch & dent loans we’ve marketed so far this year with roughly 12% trading in the high 90’s.

NPLs

We start our overview of NPLs with this statement below from New York’s Attorney General, Lititia James:

In a December 13, 2021 letter to servicers, New York Attorney General Letitia James reminded servicers of their continuing obligations to assist New Yorkers amidst the pandemic and warned of enforcement actions against servicers that fail to do so. According to Attorney General James, “lack of preparedness is no excuse.” Instead, the Office of the Attorney General will take “that lack of diligence” into account in making enforcement decisions. The letter follows the October 28, 2021, statement on the Homeowner Assistance Fund (HAF) program from New York’s Department of Financial Services and, together, the statements present an aggressive tone from the Empire State.

Then we have this news and statement from California’s Consumer Services and Housing Agency Secretary Lourdes Castro Ramirez:

According to housing officials, hundreds of thousands of homeowners across California are facing housing instability. “Twelve percent of California homeowners are facing foreclosure and 6% percent are behind on mortgage payments due to the pandemic,” said Consumer Services and Housing Agency Secretary Lourdes Castro Ramirez.  The California Mortgage Relief Program will cover past-due home bills in full as a one-time grant of up to $80,000 per household. The payments will be made directly to the servicer of a given homeowner’s mortgage and no repayment will be required.

And, finally, this ruling last year from the Texas Federal Court:

A federal court in Texas has ruled that the federal government has no constitutional power to prohibit real estate foreclosures and evictions pursuant to coronavirus legislation and regulation, calling into question whether banks, mortgage lenders and property owners must continue to abide by federal agency orders prohibiting them from reclaiming the property that secures their loans.

As we project the outlook for 2022, it is obvious foreclosure activity will continue to be state specific and foreclosure timelines will definitely extend in many states.  Fannie Mae last posted its state-by-state foreclosure timelines effective January 1, 2019, and it would be helpful to see an update.  The negative impact of extended timelines was mitigated by rising home prices in 2021 and forecasts for 2022 show a continued increase in home prices, albeit not as much as 2021. 

It is difficult to project NPL volume for 2022.  NPL buyers we work with had a good year in 2021, but to reach volume goals they had to get creative with a combination of co-bids, buying smaller pools, or purchase of NPLs within an otherwise performing loan pool.

Commercial

RAMS is expanding its commercial loan business in 2022.  Below is a summary of our thoughts and insights.

Commercial Lending in Q1 2022 followed the trends of late 2021 with some relief to the hospitality and office sectors. Originators have maintained steady production of bridge, construction, and permanent financing for multifamily with increased interest in emerging asset classes like regional data centers and climate-controlled warehousing. The transition from LIBOR to SOFR is in full swing with approximately 50% of originators polled having made the switch with the remaining number planning on converting by Q3 2022.

The US housing shortage continues to provide significant demand for the full life cycle of multifamily lending (bridge, construction, rehab and permanent) by developers. All lender types from bank to private money lenders remain heavily active in this area. Banks continue production of construction loans and bridge loans at SOFR + 5 (6%) and permanent financing at SOFR + 3 (4%). Private Money Lenders are coupled with the banks at 1.5% rate premium for qualified borrowers based on creditworthy and experience. However private money lenders are offering non-recourse loans which are driving borrowers to private money.

Office remains a troubled sector with 60% of lenders polled limiting exposure or not lending currently in the sector. The bridge and construction financings are extremely limited with originator generating “mini-perm” loans for 5 years on existing properties. This said the mini-perm paper is generally more flexible with co-working leases being more widely accepted by underwriters. Rates reflect the increased risk with mini perm loans costing over SOFR + 3.5.  Hospitality lending is beginning to thaw, but only rehab or permanent financings with major flag brands.

Similar to the office sector, retail remains a troubled sector with lender redescent to extend leverage. Mixed Use development with over 50% residential are receiving preferential treatment.

Industrial is one of the most promising areas for lending currently with major growth occurring in both Tier 1 and Sub-Tier 1 markets. Coastal California is seeing value increases in warehouse space as cannabis operations have drastically acquired warehouses for all stages of product production. This has increased loan amounts for both cannabis and Non-cannabis operations. Banks in Northern California are generating new permanent and rehab financing as developers are capturing this upswing in the warehouse space. Last Mile Shipping during the pandemic has also generated an increase in smaller warehouses across the nation.

The growing demand for computing power has generated an explosion in regional data centers with major consolidation of existing data centers by REITS over the last 24 months. Both banks and private money lenders are getting more comfortable with underwriting for smaller regional data centers.

We end with this quote from British Writer and Artist, Gertrude Jekyll,  “There is always in February some one day, at least, when one smells the yet distant, but surely coming summer.”

Another busy quarter comes to an end. Who can believe we are approaching year end already?  As the saying goes, “The only constant is change,” as FHFA reversed their imposed risk restrictions on the NOO Investor cap, Cash Window vs MBS delivery requirements, and risk parameters.

Halloween Headlines:

• Most foreclosure in history started last month
• Potential Tax increases impacting M&A and MSR sales
• Duration and extension concerns

Homeowner affordability, and first-time home buyers, continue to be a focus for the GSE’s and the current administration as evidenced by the introduction of rental income payments being allowed for agency loan qualifications.  Ginnie Mae announced two borrower relief programs: (1) FHA National Emergency Standalone Partial Claim and (2) USDA Mortgage Recovery Advance.  The VA also announced it will extend deferred payments until July 1, 2023.

The general consensus for GSE lending limits has single-family units going to $625,000 in 2022 from $453,100 in 2018. This takes us to a 5yr increase of 37.94%.  Please see table below reflecting loan limits from 2017 to present.

Year / # of Units	One	Two	Three	Four
2022 est.	$625,000	$800,250	$967,250	$1,054,500
2021	$548,250	$702,000	$848,500	$1,054,500
2020	$510,400	$653,550	$789,950	$981,700
2019	$484,350	$620,200	$749,650	$931,600
2018	$453,100	$580,150	$701,250	$871,450
5-Year % Change	37.94%	37.94%	37.93%	21.01%

With mixed news on economic factors pushing the markets one way or another, we are seeing interest rates above 3% on agency conforming product.  Originations remain brisk with margins tightening. More stable servicing values, anticipated tax increases, and differing views on rates have resulted in an abundance of large MSR deals out for bid. Smaller and mid-size mortgage bankers, who built servicing portfolios when MSRs were trading below fair value (in the sub 2 multiple range during the pandemic), are also selling to raise cash to maintain market share.

Investor yields and cash continue to keep mortgage spreads tight and asset demand remains strong. Fannie Mae $2.2BB RPL Pools all traded to a large west coast money manager at yields below 3% (mid 104s, low LTV). Fannie Mae just recently announced the results of their Non-Performing Community Impact Pool. The pool was $44.6mm, 100% NY, with ~52% BPO LTV. The cover bid was 96.18% of UPB, or 39.87% of BPO value.

Last week, Zillow paused home purchases made under Zillow Offers because the prices paid to buy homes were well through the applicable markets.  We will see how Zillow decides to approach this situation – sell at market, rent, or some combination of both.

This recently published by National Mortgage News, “Mortgage servicers started 10,289 foreclosures in September……. In the third quarter [2021], 25,209 foreclosures were started, shooting up 32% from second quarter and 67% from the year before.  It represented the first quarterly increase over 10% since 2014 and the highest since Attom [Data Solutions] started tracking in 2005, besting 28% in 1Q 2009.”

Ginnie Mae EBOs

RAMS continues to evaluate and market about $2 billion in Ginnie Mae EBOs per month.  One of the most common questions is, “What are the primary drivers of price in an EBO Pool?”

Let’s first review pricing from Q3 2021.  Pricing across eight (8) separate trades has been a range of par to 103% of UPB, plus refund of all advances, including escrow, recoverable corporate, and net interest advance.  Discount rates used in evaluating EBOs have hovered around 3% for FHA and around 4% for VA, USDA, and RHS.

So, what is driving price?  There are many factors, including supply and demand, interest rate, loan type, past and existing forbearance, past and existing payment performance, and foreclosure status.

• Supply and Demand.  Perhaps no factor impacts price of EBOs right now more than the supply and demand imbalance. There is simply much more demand than supply.

• Interest Rate.  With the run up in the 10-year Treasury Rate (1.63% as of October 26, 2021), interest rates between 2% and 2.99% are not receiving the premium pricing assumptions we saw over the summer months. 
• Loan Type.  Some Purchasers do not buy USDA or RHS loans.  Some Purchasers have a cap on the percentage of VA loans they can acquire in a given pool.  The variance in price between FHA and VA loans decreased significantly in Q3 2021 due to the application by Purchasers of very high (80% to 90%) re-performance assumptions.  However, on EBO Pools where the re-performance assumptions are less than 80%, we have seen FHA pricing exceed VA pricing by 3 to 5 points.
• Past and Existing Forbearance.  If a borrower has been in forbearance or is in active forbearance, the assumption is at least 90% of these loans will re-perform.  Borrowers who have not elected forbearance, COVID or otherwise, are considered less likely to re-perform.
• Past and Existing Payment Performance.  We are starting to see Purchaser’s consider post-forbearance payment performance as an attribute impacting re-performance.  This is definitely something to watch as more information becomes available on post-forbearance payment performance.
• Foreclosure Status.  EBO Seller’s, especially those who have been selling more recent defaults (90 to 150 days past due), are finding loans in foreclosure to be a larger percentage of their overall existing EBO Portfolio and these loans have lower re-performance assumptions.

A few more points to consider on EBOs.  For EBOs not yet repurchased out of securities, December 1, 2021, is the last day in 2021 to execute a sale.  If you are considering an EBO Sale before the end of 2021 you need to get moving on it.  If you are still in the evaluation stage, please take advantage of the RAMS EBO Analysis.  At a loan level, we can help you select the best mix of loans to maximize execution.

We have been wondering about the hundreds of millions in face amount of non-interest bearing second liens being generated as a result of FHA and VA partial claims.  What will become of these second liens if we see a large percentage of defaults on the first liens?  Will FHA and/or VA implement a new program to “save their second liens” by slowing down foreclosures on first liens?  Will these second liens come to market at some point in the future?  If yes, how will the market price zero interest rate second liens? As a reminder, in 2010 we saw an “inversion of lienholder rights” as second lien holders were able to hold up foreclosures and short sales in order to generate greater recoveries on their loans.  We look forward to monitoring this in 2022 and beyond.

Modifications

As we think about NPL loss mitigation in the coming months and years, we recall, after the mortgage crisis, borrowers with 6% interest rate loans could be modified into 2% (HAMP) and 3% loans.  While this should have made homes more affordable, borrowers still re-defaulted at an alarming rate.  Currently, borrowers have 3% interest rate loans, so will we see 1.5% interest rate modifications?  If there is no material way to make a loan more affordable through interest rate reduction, will we see a material increase in principal reductions and short sales? Please see tables below which illustrate why modifications may have limited impact this time around.

2008 Modification
Loan Balance	Rate	WAM	P&I Payment	P&I Change in $	P&I Change %
$225,000	6.00%	360	$1,348.99
$225,000	3.00%	360	$948.61	$400.38	29.68%
$225,000	2.00%	360	$831.64	$517.34	38.35%
2021 Modification
Loan Balance	Rate	WAM	P&I Payment	P&I Change in $	P&I Change %
$225,000	3.00%	360	$948.61
$225,000	2.00%	360	$831.64	$116.97	12.33%
$225,000	1.50%	360	$776.52	$172.09	18.14%

Scratch & Dent

Not much changed in this sector from our previous writing in early July 2021.  Continued supply, strong investor demand, and prices slightly higher.

Updating the tables from our last update,  we’ve marketed more than 1,000 S&D portfolios in 2021 from 312 unique sellers. This remains one of the highest yielding sectors, with most of the product having minor defects and trading in the mid to high 90s.  We see average discount rates for this product in the range of 4% to 4.5%, unlevered.

The table below shows percentage of S&D loans sold by price range during the first 9 months of 2021. 

Price	M70s	L80s	M80s	H80s	L90s	M90s	H90s	>+100
%	1%	1%	3%	2%	22%	44%	22%	5%

If you’re on our distribution list, we don’t need to tell you, but the table below shows there are deal sizes to fit every Purchaser from one and two loan trades up to trades comprised of $50MM UPB or more.

# Loans	# Pools	UPB	UPB/pool	% Of Offerings
1	518	$193,284,020	$373,135	48%
2	138	$120,451,473	$872,837	13%
3 to 10	280	$458,005,546	$1,635,734	26%
11 to 25	77	$389,238,808	$5,055,049	7%
26 to 49	20	$217,507,932	$10,875,397	2%
50 to 100	22	$496,767,422	$22,580,337	3%
>100	14	$713,251,830	$50,946,559	1%
	1069	$2,588,507,031	$2,421,428

We’ve noticed delinquent FHA and VA loans trade about 10 points back of the larger EBO pools mentioned above. On top of that, these smaller FHA and VA pools trade without reimbursement of advances.  We believe it is a good idea for Purchasers to consider these smaller pools as part of building your FHA and VA assets under management.

Prime Credit Jumbo & Non-Owner Occupied (NOO) Investor Loans

There continues to be strong market for Prime Credit Jumbos with Q3 2021 volume at ~$32.26BB. This compares to ~$45.6BB for all of 2020. Historic low rates during the pandemic have brought high volume and a strong appetite for Non-Agency RMBS from investors seeking strong credit and yield. The Non-Agency RMBS market has seen an increase in issuance with new issuers registering new shelves and the short- term supply pop from the introduction, and subsequent termination, of the 7% Agency Investor Delivery Cap.

Jumbos have been trading consistently in the 2 – 3 points back of interpolated agencies range over the last several months. The big wave of NOO investor loans has been absorbed by the Wall Street Broker Dealers with more, new, issuance coming in the next few months. There continues to be a bid and appetite for NOO Investor product with high quality pools trading 50 – 70bps through comparable agency pricing.

Supply and credit quality are concerns for 2022. With refinance volume slowing, and the aforementioned GSE conforming loan limit increase to $625,000, the question will be if guidelines widen in an effort to create volume to satisfy investor demand. We have seen some increase in acceptable LTV guidelines, but FICO and credit seems to be holding firm. Higher LTV limits in a strong housing market may not be a good sign in the event home price appreciation stalls out. Prepay speeds continue to be surprisingly high. We’ve observed lower coupon paper at higher prepayment rates as borrowers seek to tap the equity in their homes with cash-out refinances.

Non-QM

The Non-QM sector remains strong and appears to be attracting more interest as the “low hanging fruit” in the agency conforming space has run its course. The slowdown in agency refinances, coupled with tighter margins, has originators looking at “alternative products” such as Non-QM. It was certainly the topic of conversation at the MBA National in San Diego earlier in the month.

With record issuance of new deals, and fear of a backup in rates, we’ve seen some spread widening on recent deals. AAA bonds off new issue deals trading ~25 to 30bps wider than prior months should equate to roughly a 1 to 1.5 point lower in loan pricing. Non-QM loans have hung in pretty well with pricing back about a point. Earlier this week $22MM RAMS 108819 traded in high 102’s vs a similar pool, RAMS 108652, from a month earlier trading in the  high 103s 

 Specialty Loan Programs We Help Originators to Start

ITIN  (Individual Taxpayer Identification Number) loans are originated to borrowers who do not have, and are not eligible to obtain, a valid U.S. Social Security Number, but who are required by law to file a U.S. Individual income tax return.  

 

We’ve traded ITIN loans and they are gaining interest in the secondary market with 8% coupons and <80% LTVs trading with a 103 handle, compared to 5.75% coupon Non-QM loans trading with 105 handles and above. We have several new investor entrants to the market and are establishing purchase programs at attractive prices and terms. Please contact us if you have interest in this program.

Halloween is one of our favorite holidays and it is coming up this Sunday.  We close this newsletter with a Halloween quote from Oscar Wilde – “A mask tells us more than a face.”

We are halfway through 2021 and the 2nd quarter is now history. The world is forging ahead and trying to put the pandemic in the rearview mirror. Who isn’t planning a family vacation right now! Interest rates remain low and origination volumes remain strong, though pressures are rising.  Refinances have slowed and margins are tightening. Many originators are already evaluating operation infrastructure and considering how they may need to reduce overhead and consolidate operations in a reduced refinance environment. Inflation concerns, fear of rising rates, and treasury tapering are leading the headlines, but the 10yr treasury has rallied back to the low 1.30’s%. The U.S. economy is accelerating with the hottest housing market in memory.  Funding costs near record lows have investors eager to put capital to work at historically low discount rates.

Buyers in the market have a voracious appetite for assets.  There is simply more cash than assets to buy.

Non-Owner Occupied (NOO) | Investor Loans

The GSEs warned the market they were going to cap their purchases of non-owner-occupied investor loans and second home loans in order to lower their portfolio concentration below the current 10%. Originators widened their pricing to slow production to what the markets believed would be 7% cap.  In the beginning of June 2021, Freddie Mac shocked the market by capping production at 6% starting July 1^st.  Then, Fannie Mae further stunned the market with their announcement of a 3% cap for certain originators, effective immediately.  You would think such actions would cause a huge increase in available product for sale and a drop in price, right?  No.  Not only has the market absorbed the excess product, but spreads have actually tightened in this product class. Larger originators and street firms have been aggregating for Private Label Securities (“PLS”) with the announcement possibly boosting MSR values and IO multiples due to future refinance opportunities. But with higher pricing will this revert?  Recent NOO PLS have traded 25 bps tighter than Jumbo PLS given the favorable convexity profile. We believe there is a reasonable chance that these GSE caps are removed under new FHFA leadership.

Prime Credit & Jumbo

Newly originated, Non-Agency Jumbo, 30-year fixed rate product continues to be well bid. PLS continues to dominate the marketplace and security prices and spreads remain tight. Structured deals are offering bond investors yield and duration options across the credit stack. Bank demand for 30-year fixed rate product on balance sheet is not as strong with the fear of higher interest rates and durations extending. 15-year fixed and ARM demand remains very strong, but there continues to be limited production available as low rate 30-year loans dominate the market. 30-year fixed rate product is trading ~3% back of interpolated agency price, or just inside 3% bond equivalent yield. FNMA 2% are down 37.5bps in price from early May, and jumbo coupons are ~25bps lower with 3.25% pricing at mid-101.

Non-QM

Non-QM paper continues its pace of strong investor demand as supply has picked up.  There were 4 PLS deals in the market in the last week of June. With agency refinances slowing, originators have started to re-focus on specialty loans and alternative products, such as Non-QM. The Non-QM to Jumbo spread has tightened as depicted in the table below:

We’ve been helping originators find investors for specialty loans, including ITINs, IRA loans, doctor programs, seller financed HECMs, and GNMA 203k’s.

GNMA Early Buyouts (EBOs)

The pandemic threw the economy into a tailspin with asset managers seeing headlines of foreclosure moratoriums, forbearance, and record delinquencies, as an opportunity to raise capital and invest in troubled assets thereby increasing assets under management.  However, the market did not cooperate, and we have not seen the anticipated wave of distressed assets.  The rebound in the economy reduced delinquencies (or at least “deferred” them), and the lack of supply of conventional non-performing loans has created a food fight for any available assets in the marketplace.  We have seen delinquent FHA loans trade as high as 102%, plus the refund to Seller of all interest advances, escrow advances, and recoverable corporate advances and VA loans trade at par, plus refund of all advances.  The FHA and VA pricing is about 4 points and 7 points higher, respectively, than pricing at the beginning of the year.

We have been evaluating an average of $1 billion in FHA, VA, USDA, and RHS loans per week over the last 3 months.  We continue to encourage servicers and investors in these loans to get a RAMS EBO Analysis.  An EBO Analysis will identify “Positive Variance” loans, or loans where the sale price exceeds the total EBO Buyout Cost, which includes UPV, interest advance, escrow advance, and recoverable corporate advance.  Then, on all other loans, the EBO Analysis will determine the shortfall between the EBO Buyout Cost and sale price, which is the amount the Seller must invest in order to complete an EBO Buyout transaction.

We have several market observations to share. 

• VA pricing is creeping up toward FHA pricing.  Even though VA loans price less than FHA loans, in general, due primarily to the difference in the insurance guaranty, the pricing is getting closer.  The primary driver of the increase in VA pricing is the projected re-performance or re-pooling assumption.  We have seen prices where Buyers are assuming 85% re-performance or re-pooling.  When such a high percentage is applied, there is less impact to pricing on the 15% of loans assumed to either payoff or exit through liquidation.  Also, as stated below, extreme competition for FHA pools is pushing some buyers toward VA pools and we have seen about a 7-point price increase since the beginning of the year. 
• Highest bids for FHA have evolved to include refunding all advances, not just escrow advances.  As competition for FHA pools of more than $100mm increases, most top bids include the refund of 100% of all advances.  We anticipate due diligence of advances will become more detailed now that buyers are refunding 100%.  Sellers, especially those who utilize third-party sub-servicers, are hoping their sub-servicer has done a good job of documenting advances for ease of review.  We will be monitoring to see if there are adjustments to purchase prices post due diligence.
• Future risk/reward sharing transactions.  We have seen some Sellers opt for sales involving future sharing of risks and rewards from EBOs.  Risks include refunding to Buyer any loss over the remaining life of the subject loans, including FHA interest shortfall due to the variance between the actual interest rate and the FHA Debenture Rate.  Reward sharing is where the Seller receives a portion of the profit between par and the GNMA securities price less costs of sale on loans re-pooled in the future.  Sellers interested in this type of structure should make sure they can achieve sale treatment if that is a goal.

Even though it was announced that the foreclosure moratorium extension until July 31^st is the last one (see detail below), we still do not know how quickly the courts will proceed on foreclosures.  A never-ending foreclosure delay could get challenged in court, and perhaps make it to the US Supreme Court, if the validity of the mortgage contract is in question. 

Foreclosure and Eviction Moratorium 

The following was copied from the White House Briefing Room Statement of June 24, 2021:  In addition to the actions outlined to support tenants and landlords, today, the Biden-Harris Administration is also announcing efforts to support homeowners. Three federal agencies that back mortgages – the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and Department of Agriculture (USDA) – will extend their respective foreclosure moratorium for one, final month, until July 31, 2021. The Federal Housing Finance Agency (FHFA) will also announce that it has extended the foreclosure moratorium for mortgages backed by Fannie Mae and Freddie Mac until July 31, 2021.  Once the moratoria end, HUD, VA, and USDA will take additional steps to prevent foreclosures on mortgages backed by those agencies until borrowers are reviewed for COVID-19 streamlined loss mitigation options that are affordable, while FHFA will continue to work with Fannie Mae and Freddie Mac to ensure that borrowers are evaluated for home retention solutions prior to any referral to foreclosure.  In addition, HUD, VA, and USDA will also continue to allow homeowners who have not taken advantage of forbearance to date to enter into COVID-related forbearance through September 30, 2021, while homeowners with Fannie Mae or Freddie Mac-backed mortgages who have COVID-related hardships will also continue to be eligible for COVID-related forbearance. Finally, HUD, VA, and USDA will be announcing additional steps in July to offer borrowers payment reduction options that will enable more homeowners to stay in their homes.

It is important for the White House to signal an end to the foreclosure moratorium and eviction as of July 31, 2021.  Assuming this is not extended for any reason, the timing of foreclosures and evictions will be determined by actions of individual states and municipalities.  With the potential backlog of cases (we know there are still outstanding cases in New York from the mortgage crisis in 2008), we’ll see if the market can get a clear understanding regarding foreclosure and eviction timing.  Currently, this is an educated guess for buyers.

On June 25^th, Ginnie Mae announced the creation of a new pool type comprised of 40-year amortizing loans.  These will be “custom” pools having a single loan and $25,000 minimum pool size. This will help liquidity and allow servicers to offer 40-year terms under modification agreements, thereby making payments lower for borrowers.  Pools are expected to be issued in October.  We have buyers looking for these loans.

Scratch & Dent

Same theme here with strong investor demand and prices slightly tighter.  We’ve marketed more than 600 S&D portfolios year to date. This remains an attractive sector where an investor can pick up yield relative to other sectors. Of the $1.5BB marketed year to date, the weighted average characteristics were: 3.53% GWAC, 79% LTV and 11 months seasoned.

The table below shows percentage of S&D loans sold by price range in first 6 months of 2021 .  As you can see, 88% have traded with a 9-handle price.

If we ballpark the average price at 96%, this models out to ~4.50% yield.  With FNMA 3.5s @ 105-08, S&D pricing is a little more than 9 points back of TBA’s.  While relative pricing is attractive, the hurdle for this strategy is size of trades.  The table below reflects the number of loans and UPB per RAMS S&D offering this year.  Over half the offerings were single loans.

We want to remind everyone to enjoy the summer.  As Shakespeare once said, “Summer’s lease hath all too short a date.”

A dynamic and changing landscape continues in mortgage land and the financial markets. What a difference a year makes! COVID vaccinations are out in widespread supply and there is light at the end of the tunnel. States that have been in shutdown mode are slowly opening up and lifting restrictions. The pandemic hit just over a year ago and the shuttered frozen markets are a mere nightmare memory. The market has come roaring back! Lenders had a record year of volume and profitability. As we know in the mortgage business things are always changing, often quickly, with little warning. The latest curve ball thrown at the residential mortgage market is the new FHFA capital requirements being imposed on the GSEs. These new capital and portfolio requirements have impacted the mortgage market by way of a 7% delivery cap for Non-Owner Occupied and 2^nd home loans.  Many states, and political groups, are viewing this initiative positively as they’ve questioned why the government was in the business of subsidizing the investor market. Many would argue that supporting the investor market is not in alignment with the GSE’s affordable housing mandate. This new limitation has come with very little warning and has left originators scrambling to manage their current pipelines and closed loan inventory. With a June 1^st deadline to be under the mandated 7% threshold, there is little time to set-up non-agency delivery options. With the GSEs new $1.5BB annual cap at the cash window and the conversion of more originator’s production back to MBS issuance, there is a lot of internal price and operational restructuring going on, as lenders continue to produce and process a record volume of mortgage loans.

Reflecting on the 1st quarter of 2021, RAMS Mortgage Capital’s trade desk marketed 363 portfolios for ~$6BB in UPB and officially launched its Evaluation and Analytics Services Group (see some of the Group’s work in the Ginnie Mae Early Buyouts & NPLs Section below).

Non-Owner Occupied (NOO) /2^nd Homes.

As mentioned above, there is a wave of additional agency eligible NOO/2^nd home paper currently hitting the market. Large, medium, and small originators are all in the same boat looking for new outlets for this product. Lenders are hitting their rate sheets from 50bps to 2.50 points, with some even halting production of this product until they get a handle on clearing levels. Some Private Label Securitizations (PLS) issuers have been including these loans in their transactions for some time.  Pricing is often higher than GSE delivery for certain attributes due to loan level price adjustments (LLPA’s). This may give some of the larger lenders with shelves, such as Quicken, Loan Depot, Flagstar, Chase, and Wells Fargo, a competitive advantage in this sector.

We’re seeing pricing for bulk size and future production at N+180 to N+200 to a 15CPR equating to just inside a 3% yield, or otherwise quoted as Flat to 75bps back of agency execution.

We expect a combination of PLS issuers and other portfolio investors will step in to absorb the current overhang and seek to establish flow relationships for ongoing future production.

While the immediate concern is pricing, this new injection of supply doesn’t bode well for any shortening of 3^rd party due diligence timelines and the subsequent strain on already maxed to capacity warehouse lines. Originators and investors continue to struggle securing due diligence resources to handle the current volume, and untold billions of dollars in paper, which previously had gone directly to the agencies, will now need to go through due diligence for sale into these new non-agency outlets.  With diligence costs ranging from $350 to $500 per loan, we recommend, originators consider delivering the lowest balance loans first into their 7% cash window allotment.

Ginnie Mae Early Buyouts (EBOs) & NPLs

The first quarter of 2021 saw a resurgence in EBO sales.  The primary causes for this increase are: (1) fear of increasing delinquencies, (2) managing HUD Compare Ratios, (3) higher servicing costs as we get closer to the end of foreclosure moratoriums and forbearance agreements, and (4) the potential backup in prepayments due to rising interest rates.  Sellers know (especially sellers who have used payoff funds, and not corporate cash, to cover interest and servicing advances) a “day of reckoning” is on the horizon where all advances will become due, less amounts recovered through payoff, modification, and re-performance.  RAMS has seen re-performance percentages vary greatly by seller/servicer.  We have developed a transaction where the seller has not purchased the subject loans out of the GNMA MBS’ and the repurchase is completed concurrently with the subject sale using funds primarily provided by buyer.

RAMS assists sellers in analyzing FHA/VA/USDA/RHS loans eligible for buyout even if they are currently in forbearance.  We include 60 – 89 days past due loans in this analysis as they may be 90+ days past due as of the cut-off date for closing.   The evaluation is performed from both a market as well as an internal perspective (projected future cash flow if loans are repurchased and seller’s recovery is generated from a combination of foreclosure sale, REO sale, modification, re-performance, and payoffs).

From a market perspective, we assist in determining the percentage of the buyout cost to be borne by seller (seller’s cash drain).  We calculate the EBO Buyout Cost for each loan vs the current market price.  The difference between these amounts is described below in Illustration 1.  In Illustration 1, seller will need to fund 2.670% of FHA EBO Buyout Cost, 8.674% of VA EBO Buyout Cost, and 3.594% of USDA EBO Buyout Cost.   This percentage can vary depending on whether the seller has paid out of its own corporate cash, or used payoff funds, to cover its interest and servicing advances on defaulted loans. 

Illustration 1 EBO Buyout Costs

Type	Price	Px including Advances	EBO Cost Seller	EBO Cost Buyer
FHA	101.88%	104.71%	2.67%	97.33%
VA	90.68%	93.31%	8.67%	91.33%
USDA	99.51%	101.34%	3.59%	96.41%

From an internal evaluation perspective, assuming property values do not materially decline, the biggest driver to loan value is the variance between projected percentage of re-performance vs. recovery following foreclosure sale (or REO liquidation, as applicable).  Some sellers have the ability to re-pool and re-sell the re-performing loans and will receive the full benefit of GNMA securities pricing.  Other sellers do not have this capability and will look to resell these re-performing loans.  We have found a market for re-performing loans at GNMA TBA minus 2 points. While every pool is different, Illustration 2 below shows FHA loans only have about a 3-point variance between zero re-performance and 75% re-performance.  VA loans have about a 17-point variance, and USDA loans have about a 7-point variance.

Illustration 2   Re-Performing % Sensitivity Analysis 

Type	0% RePerform	25% RePerform	50% RePerform	75% RePerform
FHA	99.66%	100.68%	101.69%	102.71%
VA	74.82%	80.48%	86.15%	91.81%
USDA	93.42%	95.73%	98.04%	100.34%
Total	83.39%	87.46%	91.52%	95.58%

Another analysis we provide to sellers compares the cost of completing the EBO Buyout now vs. holding the loans to resolution.  We have seen projected seller buyout costs for hold to resolution as high as 8 times what it costs to complete the EBO Buyout now.  Therefore, we encourage all owners of GNMA servicing rights to evaluate your EBO Buyout options and develop and implement a plan to avoid a major buyout cost down the road.  Contact RAMS for more details. 

Other 1^st quarter non-performing color: RAMS marketed 22 non-performing portfolios for ~$1.5BB.  RAMS pool # 107737 was $88mm of Non-QM NPLs which had a 6.56% GWAC with a sub 70% LTV and traded around par. Another Non-QM NPL pool # 107549 similar coupon but >85% LTV traded in the low 80s.

Non-QM

Non-QM continues to demand high prices for production driven by bond investors seeking higher yielding assets. Production supply has not kept pace with this demand as originators continue to focus on agency production with wider profit margins. The coming months could shift that focus if rates continue their recent uptick. Refinance volume has slowed slightly with this modest back up and we’ll have to see if this is just a slight move up or a sustained move upward. Originators don’t currently have excess capacity to look at alternative products with the operation demands of today’s production volumes. Originators view a slowdown in refinance volume as the re-entry point for Non-QM product. Most notable trades were RAMS 107695, $117mm – 5.39% GWAC, 67% LTV, 35bps servicing retained, traded at 105-16.  RAMS 107459 $100mm small balance commercial loans in NY & NJ with 33% in forbearance traded >102.

S&D

In first quarter of 2021, we marketed 307 Scratch & Dent portfolios for nearly $700mm, trading more than half of them.  Pricing continues to remain strong with prices averaging in the mid to upper 90s.  If rates stay at current levels, we expect the next chunk of product to have lower interest rates and lower pricing, as many S&D buyers implement strategies other than just clipping coupons. We expect banks to return to this sector in the coming months. Current discount rates used by active S&D buyers are in the 4.0% to 5.0% range with little to no additional, or new, forbearance projected in the coming months.

Jumbos

Non-Agency Jumbo pricing remains tight and well bid with product trading just north of a 2% yield. As mentioned above, these deals will grow in size given the additional NOO/2^nd and high balance conforming product that will be included in these PLS deals. This additional production will bring higher concentration levels than prior deals. It will be interesting to see how rating agency and subordination levels will be adjusted. Aggregating this product has proven to be challenging in the past and we all know there is no perfect hedge.

It was opening day of baseball this week.  So, from the late, great, Henry Aaron – “It took me seventeen years to get to three thousand hits in baseball.  It took one afternoon on the golf course.”

While most people are happy to have 2020 in the rearview mirror, the liquidity crunch in March did not last long, and it ended up being a very good year for mortgage bankers, who enjoyed record volumes (perhaps the most in history – $4 trillion), high margins, and profitability.  Not only was it a good year for origination companies, but also for their loan officers and operational staff. Compensation increased as the result of fierce competition to hire additional staff to absorb and process increased production. There continues to be a scramble to find third party due diligence resources to get production processed and bulk deals closed. Conversely, mortgage investors struggled to find product to invest their cash as the market rebounded from the wide spreads of the pandemic meltdown. With agency MBS yielding less than 1%, and non-agency product not being widely available, we saw yield hungry fixed income investors crossing over into other sectors for returns.

The CFPB gave the housing market and mortgage industry an early Christmas present by finalizing the “General Qualified Mortgage” definition and eliminating the “Non-QM Patch.” The 43% DTI threshold and Appendix Q are gone and replaced with a price-based standard. Some believe this will shrink the Non-QM universe making more loans QM eligible. The rule also does not prescribe any particular underwriting standards giving lenders more flexibility to determine ability-to-repay.  This action could ultimately result in an easing of lending standards and improve overall Non-Agency volume.

The U.S. housing market continues to climb and is the juggernaut leading the economy through this turbulent period. Sentiment for future home price appreciation is a bit mixed, though the consensus is for moderate future growth. In the past, the strong housing market has bailed many investors out of riskier mortgage investments and this could happen again despite a few regional speed bumps.

 Scratch & Dent – This was a very active year in scratch and dent. Record volumes, employees working remotely, and learning curves for new employees at new platforms, all contributed to loan manufacturing errors. In 2020, we marketed over 9,000 S&D loans for $3BB+.When the pandemic hit, the market was flooded with paper due to a combination of: Non-QM from the lock down in the securities market, margin calls from warehouse lenders, and pressure from warehouse banks to exit any seasoned loans on their lines or get curtailed with cash demands. It was a very challenging market as rates dropped to historic lows and originators were faced with a multitude of liquidity and cash issues. Many S&D buyers were forced to exit the market due to margin calls, losses, or cash constraints. Some S&D buyers made material changes to their purchase criteria. Liquidity came at a steep premium, and purchase yield requirements gapped wider bringing with it about an 8 to 10 point drop in prices as well as many failed and broken trades.

 As the market stabilized, and liquidity returned, the market corrected and began to rebound in an orderly fashion. What was once a low to mid 80s market, now improved to a high 80s to high 90s market with investor yields now <4% versus the low double digits yields seen during March and April 2020.

We’re expecting a very active 2021 for the S&D market. The GSEs will be deep into post purchase reviews and audits in early 2021, and loans with any manufacturing or underwriting flaws will be put-back to originators for repurchase. With strong earnings in 2020, many lenders have increased their loan loss reserves in anticipation of repurchases.

Non-QM – The Non-QM market remains strong and well bid. There continues to be a strong appetite for product with more buyers than there is new production available for sale. Aggregators and RMBS issuers remain hungry for product to issue new deals and meet investor demand for investment grade securities.  Some Non-QM originators have re-opened their Non-QM production channels although many remain cautious from the recent scares following the March market shutdown. Originators remain focused on the agency “low hanging fruit” as margins continue to remain attractive given the heavy refinance volume with interest rates at all-time lows. If interest rates increase in 2021, and there is any slowdown in the agency origination space, originators are likely to shift their focus to non-agency products such as Non-QM. New production Non-QM prices are in the mid 103s for core production with investor DSCR loans priced as high as mid 104s with strong credit and prepay penalties. Legacy seasoned production remains priced at par and below as buyers remain cautious with these loans due to outdated employment and income documentation needing to be refreshed to reflect a borrower’s current status. As mentioned earlier, let’s see what 2021 brings to this sector with the end of the Non-QM patch and new QM definition.

Jumbos – Non-agency jumbo demand is being out paced by new production supply available for sale. Production remains dominated by the money center and regional banks as they retain their proprietary production. A few new players such as Quicken have entered the private label market as new issuers. The “Street Firms” continue to have a strong appetite for high quality jumbos. On the investor side, demand remains robust for loans and RMBS as they are flush with cash, seeking returns/yields.  With the new GSE conforming limits increasing to $548,250 and $822,375 in most high-cost areas, we don’t see supply increasing in 2021.

NPLs – State and GSE moratoriums dampened the NPL volume this year, and like other sectors, we saw yields tighten. We marketed 115 NPL portfolios for more than $2BB. We have even traded some NPLs over par for the right combination of low LTV and high coupon or default coupon. In the past, many active NPL buyers had limited the amount of NPLs acquired in New York, New Jersey, and the Northeast due to concerns about foreclosure timelines and navigating difficult court systems.  In 2020, for the first time in perhaps – ever, we heard some buyers wanting to limit exposure in California, Oregon, and Washington State due to uncertainty regarding government positions on foreclosure moratoriums.  Even though foreclosure timelines remain hard to estimate, increases in property values have kept prices high and buyers are gearing up for larger volumes of NPLs in 2021.

Ginnie Mae Early Buy Outs (EBOs) – The government loan space is another market sector where the consensus is there will be a large supply of product coming to market in 2021. 2020 brought unemployment, missed payments, foreclosure moratoriums, and forbearance. The pandemic brought fear of massive advance obligations as borrowers were granted payment forbearance while the same payments were guaranteed to Ginnie Mae MBS investors. The government stepped in and provided financing lines to protect both the MBS holders and the lender/servicers.

As we can all acknowledge, the pandemic is a beast we don’t have control over and the impact on the economy and employment is still uncertain heading into 2021. The economics of these loans purchased out of their Ginnie Mae securities is more complicated than other “distressed” mortgage loans. Licensing, advances, escrows, claims reimbursement curtailments, negative carry, re-performance, re-securitization, debenture interest, and foreclosure timelines make for a murky picture. The current high refinance activity and return of prepayment interest has been an offset to some lenders, but present value cash-flow analysis can be very telling. Negative cash returns coupled with a big drop in the debenture interest rate (now at ~1%) has exacerbated the coupon mismatch in this product. There will continue to be more loans in forbearance that may turn delinquent and will need to be actively managed. Prices have improved substantially, and the bid / offer spread in this product has compressed enough to make these sales more bearable for sellers.

A number of EBO pools traded in late 2020. Last month we traded RAMS 107283 $120mm FHA EBO’s in the very high 90s. We are also currently marketing a large VA EBO pool with pricing in the low 90s.  We have also traded several smaller FHA and VA pools that are in forbearance or currently delinquent, ranging in price from the mid-80s to mid-90s. Ahead of the anticipated EBO supply this year, we have developed a flow program to help even out the cost lenders would take in a particular month or quarter.

Forbearance – As of the end of Q3 2020, there were roughly 3.6 million homeowners with an unpaid principal balance of $751 billion on pandemic related forbearance plans, or about 6.8% of all active mortgages.  Approximately 80% of borrowers requesting an initial 3-month forbearance asked for an additional 3-month extension.  The variance by loan type was significant:  4.7% was Fannie Mae and Freddie Mac, 11.2% was FHA and VA, and private label and bank portfolio was 7.3%. 

Most borrowers in forbearance are provided 3 repayment options: (1) reinstate at end of forbearance period (if the borrower has the wherewithal), (2) pay back the arrearage in 1/12^th increments while making regular on time payments, or (3) defer to end of the loan. 

On 12/23/20 according to the CFPB, the FHA and VA deadline for requesting an additional 6-month forbearance extension is 02/28/21.  Fannie Mae and Freddie Mac do not have a specific deadline, although Fannie Mae and Freddie Mac foreclosures are on hold until 01/31/21.  FHA and VA loans cannot start or complete foreclosures until 02/28/21.

No one can be certain if the above deadlines will be extended again.  A large part of the population of the country remains in lock down.  We asked our Evaluations and Analytics Team to analyze the price impact of a 12-month forbearance plan with a payback under each of the 3 repayment programs.  Assuming a loan with a $400,000 UPB, 30-year term, 4% fixed rate coupon, and 7-year estimated life, we saw between a 5.67% and 12.47% price difference. Please see results of our analysis in the table below.

Repayment Plan / Discount Rate	1% over Coupon	2% over Coupon
Reinstatement	5.67%	10.86%
1/12th Per Month Repayment	5.79%	11.01%
Deferred to End of Loan	7.06%	12.47%
Variance Between Plans	1.39%	1.61%

It is important to note the above percentages reflect borrowers who repay following forbearance.  But what if they don’t pay?  When borrowers have not made payments in a year, some portion of them will require “motivation” to start paying again.  The possibility of foreclosure and losing the property is good motivation, but what if the courts or current law limit or prohibit foreclosure for some period of time?  Following the financial crisis of 2008, we saw the advent of new companies and law firms specializing in assisting borrowers HOW NOT TO PAY their mortgage.  Will some of these forbearance situations result in loans where borrowers don’t pay for a very long time?  This is the wild card and will happen on some portion of the loans – what percentage remains to be seen.

RPLs – This was the largest year-over-year growth area for RAMS in 2020. We were granted FINRA membership approval and now have the ability to assist clients with their securitizations. Other firms were given the easy work while RAMS was given the hard work of selling the loans that fell out of RPL securitizations. These RPLs include minor compliance issues, major compliance issues, delinquency, forbearance, property related issues, collateral related issues, and servicing related issues. It is rarely the case where one buyer pays the highest price for a RPL regardless of the issue. In fact, there are some compliance issues where certain buyers have no bid. RAMS specializes in identifying the right buyers for each type of RPL and assisting Sellers to achieve the highest price while limiting the friction related to selling to multiple counterparties. We believe two of our 4th quarter RPLs trades are a good reflection of the current market and RAMS’ approach to selling these “rougher” loans. RAMS 107250 and 107334 were RPL trades involving 5 buyers. The 2 trades included 130 loans, a total balance of approximately $26MM, and a WAC of 4.75%. Approximately 25% of the loans were delinquent and approximately 20% of the loans had compliance or other due diligence issues. There was no fallout from these trades priced in the low-90s. On the cleaner side both Fannie and Freddie sold RPLs in the 4thquarter into aggressive bids with the cleanest pools trading at yields less than 3%.

Evaluation & Analytics Group – In 2020, RAMS marketed 1,301 portfolios for more than $31BB.  This market trade data was utilized by our Evaluation & Analytics Group in the preparation of market evaluations for banks, mortgage companies, mortgage servicers, and fund investors.  We offer evaluation and analysis reports at the most competitive rates available in the market. Please contact us with your mark- to-market needs.

We welcome your feedback, thoughts, and predictions for 2021.  Let’s all hope the vaccines work and the world can return to something approximating normal as soon as possible. We appreciate your business and ask that you continue to send us your inquiries and loans. 

We wish all a safe and healthy Happy New Year and thank you from everyone at RAMS.

It’s a busy time in mortgage finance.  Another strong quarter is in the books with production volume and margins at all-time highs.

Quicken, Caliber, United Wholesale Mortgage, Loan Depot, Amerihome, Guaranteed Rate, and Guild are all looking to go public.

Funding costs and yields have dropped and credit spreads have tightened close to pre-crisis levels.  There’s plenty of cash in the system looking for yield. Massive prepays from Fed cash infusions, MBS purchase program, and lowering of interest rates have returned principal back to investors who need to reinvest and put their cash back to work.  Lenders are fighting over operational resources in order to handle and process all the production volume.

Scratch & Dent

With record production volume, and everyone working remotely, there continues to be a consistent flow of scratch and dent paper in the market from originators and aggregators.  The market has made big strides with market prices for this sector rebounding to levels that some investors consider “rich.” Pricing hasn’t returned to pre-COVID, over-leveraged prices, but they’re back to a trading range of upper 80s to mid-90s for product with minor flaws and market LTVs.  There has been a flood of small pools and single loan trades across the credit spectrum at more attractive yields.  Larger pools are trading more aggressively as investors are “paying up” for the opportunity to put larger amounts of capital to work.  RAMS 107097 ($28.4mm),  RAMS 107071 ($55.8mm), RAMS 106915 ($33mm), and RAMS 107085 ($15mm) all traded in the low to mid 90s for a wide range of credit and performance.  There continues to be a mix of forbearance and delinquent loans in these pools (on average about 20% to 30% of pool balance).  Forbearance loans are trading approximately 3 to 5 points back of similar loans without forbearance. The table below is a summary by month of S&D loans marketed in 2020 by RAMS vs the previous two years.

The new headline this week is the beginning of Agency put backs and repurchases.  Fannie Mae has started contacting lenders and making repurchase demands.  Apparently, Fannie Mae is casting a wider net to identify loans where a borrower has contacted the originators or servicer.  This includes loans where a borrower only made contact and didn’t necessarily request a forbearance plan or claim any hardship.  A borrower contacting an originator or servicer to find out their options or gain more information on the rules relating to forbearance plans, may be deemed ineligible and put-back to the originator.  

May the hand to hand combat begin! 

Lenders are looking at their agency contract for the definition of what qualifies for a forbearance plan versus the new definition Fannie Mae has now put in front of them.  Servicing notes are being pulled and reviewed, but this action may not lead to a resolution.  In addition, it looks like repurchase will be the only option vs the 5 to 7-point hit levied for those loans in forbearance earlier in the year.  We are monitoring this closely as we expect lenders to get more aggressive in pushing back on these repurchase demands. 

Non-QM

Agency eligible loans are the primary focus for most lenders today.  There is huge demand from borrowers to refinance into lower rate loans as well as a brisk purchase market. Margins are very attractive in the agency space, and scars are still fresh from the recent non-agency market shut down, but the Non-QM machine is back, and there is strong demand for new issue securities.  Recent third quarter deals included  ~6% coupon, ~720 FICO, and ~75% LTV.   Non-QM production is on the rise, but not at the pace we saw prior to the pandemic. New production loans are trading in the 102.50 – 103.50 price range.  Seasoned loans originated prior to pandemic, such as RAMS 107121 $13.3mm, are trading in the mid to upper 90s.

We have launched the Non-QM portfolio and warehouse financing one-stop bulk purchase program, mentioned in the last update.  This program does not rely on the private label securitization market, shielding sellers from the volatility that has occurred in the recent past.  Please contact us if you’re interested in learning more.

Jumbo

New production, 30-year, fixed rate, jumbos are trading well with solid demand from bank portfolio and private label security issuers.  This new production is trading 1.50 – 2 points back of interpolated TBAs.  Jumbo ARM production is light due to low fixed rates and the duration trade-off is muted by comparable 15 and 30-year rates. There have been very few bulk seasoned ARM pools out in the market.  There is strong demand for this product, but bank sellers are flush with deposits and are challenged to find more attractive investments. RAMS 107072 $48mm, a Small Balance Commercial (mixed use &multi-family) portfolio, came with a very strong credit profile, and 6% coupon.  Bids came in at 102.  We’ll be marketing a ~$75mm Jumbo ARM pool later this month.  

Government Loans & EBOs

Due to the pandemic, and overall economy, FHA and VA loan delinquencies have been on the rise and many lenders are contemplating how to handle the onslaught of borrowers coming out of forbearance. The high touch nature of these delinquent loans, and strict servicing rules, create higher costs, and, we believe, are better served in the hands of special servicers.  Ginnie Mae issuers and servicers have been buying these loans out of pools using financing lines to stop the cash bleed of advancing into GNMA securities.  The recent July pooling restriction issued by Ginnie Mae requiring borrowers to make 6 consecutive timely payments prior to re-issuance will limit the number of loans issuers can redeliver.  With all the state and federal intervention in evictions and foreclosures who knows how long some of this paper will be stuck in limbo as lenders bear additional financing and servicing costs. Lenders could be left owning and servicing more troubled loans for a longer duration than expected followed by selling loans into a much less favorable market.

RAMS 107007 ($22mm) and RAMS 106765 ($23mm) traded in the low to mid 90s.

 NPL & RPLs

There are high expectations for additional supply to come to market in the near-term due to economic uncertainty and the ongoing pandemic.  We’ve heard there are multiple firms raising money for opportunity funds in anticipation of this additional supply.  Investor returns on non-performing loans (NPLs) are based on projected percentage of re-performance, housing appreciation, and timelines to foreclosure sale. Home price appreciation has been on the rise across the country, but the state and federal eviction and foreclosure moratoriums have extended timelines. That said, pricing and demand have remained firm.   Smaller pools continue to trade behind the larger pools by between 5 and 8 points.

Last week, FHLMC sold 4 pools of mostly re-defaulted, previously modified, loans totaling nearly $500mm.  The pools were stratified primarily by LTV.  Market color is pools 1, 2, and 3 traded to one buyer in the ~6% yield area, and the 4^thpool with >100% LTVs traded in the 10% yield area.

Fannie Mae had $2.8BB of RPLs out for bid Tuesday and loans traded at very strong levels.  We’re expecting more details early next week.  RPLs remain very well bid with prices in the range of 90s to par plus, with yields inside 4%.   ​Seasoned RPLs are trading higher as buyers can evaluate, and project, future borrower performance based on a longer track record, including borrower payments at a time when borrowers were offered forbearance.

We’ve recently traded several pre-COVID Bridge and Non-QM NPLs at higher prices than performing loans. This is due primarily to very high default interest rates (~24%) coupled with low LTV’s.  We recommend originators investigate adding to their promissory note’s language related to a stepped-up coupon triggered by nonpayment as price protection against potential future defaults.

We have a handful of super jumbo NPLs and REOs in NY, CA and FL available for sale and properties ranging in value between $3mm to $17.5mm.  Delinquent borrowers in this space tend to be very “creative” in their ability to avoid payments and foreclosure. One of these loans hasn’t made a payment for 11 years.   One interested buyer we talked with is planning to resolve jumbo NPLs using an approach outside of the foreclosure and legal process. 

CRA Inquiry

We have a large supply of agency eligible CRA loans nationwide. If you’re in need of CRA credits (investment, lending or service), this may be your last chance to get your HUD numbers in line for 2020!

It’s great to be a mortgage originator and even better to be a loan officer!

Origination volumes and margins are at all time highs.  Originators are working for 350bps PLUS the value of MSRs.  Lenders are growing in order to absorb and manage the new volume. It’s the “pig through the python” conundrum as many lenders are managing capacity by widening margins as credit and capacity hit their caps.  Warehouse lines and Broker Dealer hedge lines are capped and lenders are seeking more credit, but struggling to find it in alternate sources. With all the volume, managing turn times and staffing is very tight. Lenders are finding it difficult to hire additional underwriters, processors, and closers.

The largest aggregators and servicers have staggering volumes even though market pricing and liquidity for MSRs are significantly back of pre-COVID levels.  Prepayment speeds and MSR write-downs are still big concerns. Co-issue and bulk deals are hard to find unless sellers are willing to sell at bottom feeder levels.  To add insult to injury, concerns remain for how the GSEs will be updating their buy-up/buy-down grids through the end of year.

With all the news about increased origination volumes, we are also seeing a trend of increasing forbearance and delinquencies.  Keeping track of the loans in forbearance has been hard as the number of new forbearance plans, and extensions of existing plans, are being granted.  Several servicers are forecasting about 25% of loans in forbearance will become delinquent.  We will elaborate on this topic below.

Scratch & Dent and RPLs

There is still plenty of product and supply on the market: single loans, small pools, as well as $10mm – $40mm sized pools from larger lenders.  Many of the buyers that were lost in March’s market free fall and margin calls have come back, but more recently, new buyers have emerged in this market.

We marketed 108 S&D pools for $387mm over the last 30 days. Prices continue to remain fairly firm in the low to high 80s range. Low 90s and above pricing is there for the highest quality loans still driven by LTV, occupancy, FICO, and coupon. We have seen a marked increase in both loans in forbearance and delinquent loans. Pre-COVID, the vast majority of scratch and dent pools came with little to no delinquent loans. Today, we’re seeing scratch and dent pools comprised of as much as 30% delinquent and loans in forbearance.

We have a mix of opinions in the market.  While some S&D buyers are buying these loans in forbearance, we are seeing an opportunity with more traditional NPL buyers picking up these delinquent and loans in forbearance. Early payment default (EPD) language is becoming more prevalent in these trades as buyers are looking to protect themselves from loans becoming delinquent.  Based on loans we’ve traded, a loan in forbearance typically comes with a 4-5 point price hit.  We start this week with 10 S&D pools bidding.

NPLs & GNMA EBO’s

With more states in shutdown mode, a struggling economy, and more unemployment, even more delinquent loans are projected as current delinquency levels increase.  We foresee an increase in smaller pools on the market and a large increase in GNMA EBO product. We’ve traded 4 pools recently. ($23mm RAMS106765, $7mm RAMS106781, $10mm RAMS106820 and $5mm RAMS106879), all priced in the high 80s to low 90s.

GNMA MBS issuers need to manage their HUD compare ratio and need to buy 90+ day delinquent government loans out of pools. Government loans, with their higher risk profiles, are already experiencing higher delinquencies. The good news is these loans come with various forms of insurance, the bad news is there are fewer buyers with the requisite HUD seller/servicer approvals to handle all of the increased volume and/or have the servicing experience to navigate strict government claims processes to maximize recoveries. Traditionally, large GNMA MBS issuer banks have chosen to hold and service these loans given the positive interest carry. However, the higher costs associated with servicing these high touch loans, has made holding these loans less attractive for commercial banks even with their low cost of capital.

Ginnie Mae has also added some temporary pooling restrictions on re-pooling delinquent loans if they become current. These loans will be re-securitized into designated pools referred to by Ginnie Mae as “C RG” pools which will not trade as well as when they were commingled into GNMA multi-issuer pools.

Scheduled to bid this week in this sector we have: $37mm RPL/NPL RAMS 106902, NPL 2^nd’s RAMS 106903, $1.4mm NPL RAMS 106923, $2.7mm NPL RAMS 106924, $16mm GNMA EBOs RAMS 106927, and 322 REOs for $95mm in property value RAMS 106917.

Non-QM & Jumbo

Non-QM is back in business.  New issue private label securities (“PLS”) continue their march forward and are being gobbled up by institutional investors hungry for yield.  Given the return of liquidity to the markets, Jumbo production is also ramping up. There have been a number of new issue PLS in this sector and we traded about $100mm of RAMS106800 slightly back of par. Non-QM production volume is way down from pre-COVID levels as coupons are high and not generating an abundance of borrower demand. Moreover, many lenders are currently more focused on wide margin GSE production. Some originators we talked to are gun shy to really push production as they are wary of being left “holding the bag” if aggregators/issuers walk from trade commitments. We’re currently working with a large regional bank to provide a one-stop shop solution to a select group of lenders. The program is warehouse financing coupled with a whole loan take-out.  This is a powerful solution providing diversification and protection against the volatility of the PLS securities market.  Please contact us if you’re interested in learning more about this program.

We’re expecting sellers to bring more product to market in mid-late August in order to facilitate sales for end of Q3. We think it makes sense to start planning any bulk or distressed sales needed by year-end.  Any late 4th quarter sales could be costly as liquidity will likely come at a steep premium.

We leave you with this quote from Thomas Edison, “The three great essentials to achieve anything worthwhile are: hard work, stick-to-itiveness, and common sense.”

We hope everyone enjoyed a nice Father’s Day weekend.

Non-QM

Non-QM is back in action and has made a big recovery in the last couple weeks as the new issue, private label, market has repaired itself.  New deals are flowing, and spreads are tightening. We’re still not at levels that can spur on new production, but this activity has impacted the overhang of seasoned, orphaned, larger bulk, Non-QM pools with pricing into the high 90s. In one trade, an opportunistic buyer was able to acquire concurrently:   a large bulk pool, company stock warrants, and future production commitments. Aggregators and issuers are going to be more selective in the future, and the profile for new production is materially tighter than pre-COVID originations, including higher coupons, higher credit profile, and lower LTVs. Questions remain on how originators will get comfortable making new loans knowing there is still market risk that aggregators can walk away from commitments in the event of another market implosion. Non-QM lenders don’t want to experience another repeat of this most recent market nightmare. For the remaining Non-QM production tails, with higher risk attributes, we see loans trading in line with Scratch & Dent with loan level prices dependent on various credit and equity factors. We don’t see these loans getting scooped up by aggregators and making it into new issue deals.

Scratch & Dent

Scratch & Dent prices have bounced off their bottom and have stabilized. There is still an abundance of product on the market and we don’t expect this to change in the near term.  We’ve marketed 110 S&D pools for ~$445mm since last writing. Loans resulting from GSE and aggregator repurchases and kicks should remain brisk, and we are already seeing a new wave of loans in forbearance coming to market. We’ve tested the market by marketing entire pools currently in forbearance, with $13mm RAMS 106776 pricing at 91%.  Loans in forbearance are being viewed and priced as bad pays or delinquent loans depending on the reason for the forbearance. Has the borrower been materially impacted by the pandemic? Is the borrower employed,?  If yes, what industry and what is their job title and position?   Finally, what is their level of cash and asset reserves?  LTV remains the biggest driver and high LTV loans are getting hit the hardest. Most trades are pricing in a range from low 80s to 90 depending on the loan level attributes, but we have also completed trades in the high 70s to mid 90s. Pre COVID buyers were pricing with 5% to 6.5% yields. Today’s buyers have higher yield requirements and tighter buy boxes, although there are a few bank buyers using tighter yields while being more selective. In the near term, we don’t see prices rising much higher until leverage returns to the market, or there is a downturn in supply. If you have any VA IRRL’s or VA Cash-Outs >90% LTV we have buyers looking to purchase these loans.

Current offerings include $47mm RAMS 106804, $6mm RAMS 106803, $5mm RAMS 106802, $7mm RAMS 106799, $7mm RAMS 106795 and a number of 1 & 2 loan offerings.

RPL, NPL, and Ginnie Mae EBO’s

FHFA announced last week the GSEs would be extending their moratorium on foreclosures and evictions until August 31st. The months leading up to now have been reasonably quiet, but there has certainly been a pick up in recent activity. There have been a number of both small and large pools traded back of pre COVID levels, but this sector has not seen the same price decline as the other sectors mentioned above. See $19mm RAMS 106762, $31mm RAMS 106756, $2mm RAMS 106745, $6mm RAMS 106735. With forbearance and delinquency numbers higher, and higher unemployment, we are already seeing, and expect to continue to see, an increasing amount of higher LTV, Ginnie Mae (FHA/VA), loans. These loans being purchased out of Ginnie Mae pools have a lower probability of re-performance and are unlikely to be re-pooled back into Ginnie Mae MBS securities. These loans when carrying government insurance can still trade at decent prices, and, in our opinion, are better off in the hands of special servicers and distressed investors than sitting on the balance sheets of originators, who typically lack the servicing expertise and willingness to embrace modifications, including principal forgiveness. Recent trades of EBO’s include $23mm RAMS 106765 & $7mm RAMS 106781.

Jumbos

There’s not much to say here, with jumbo rates at or near record lows it’s tough for borrowers to actually get a loan. We are marketing a $128mm RAMS 106800 Prime, Seasoned, Bank Portfolio for those that might be interested.  If you are planning a private securitization for Q3 or Q4, or a bank flush with deposits this $128mm may be a perfect addition to improve the overall loan characteristics of your securitization or portfolio.

Stay well and please share any market color with us.

Here is an inspirational quote we want to share: “The struggles we endure today will be the “good old days” we laugh about tomorrow.” Aaron Lauritsen.

A well-deserved, and needed, long weekend! Most of us didn’t hop on a plane to spend the long weekend at a beautiful beach, or a crowded resort, but, hopefully, you were able to get away from work and the constant onslaught of emails. Our barbecues were roaring and we enjoyed a another nice weekend with our families.

It feels like the mortgage market has stabilized with some positive trends for the industry. We continue to watch unemployment and forbearance numbers rise, but many market participants are starting to see light at the end of the tunnel as many counties and states loosen up shelter at home and business restrictions.

Non-QM
Many monoline Non-QM originators continue to hold on balance sheet the loan production generated prior to COVID-19 hit and its impact on financial markets. There is renewed optimism that this sector will come roaring back with new issuance coming to market. Last week we saw a number of new issue private label securitizations; Neuberger Berman, Angel Oak, Starwood, and Verus. The deals all went well, which is positive news for issuers, originators, and investors, but the implied whole loan execution of these deals was still less than 95. For the remaining, seasoned, Non-QM product, we don’t see prices rising above 95 as we’ve mentioned in prior market updates. Perhaps some of the highest quality loans improve into the low and mid 90s, but we continue to see pricing in the mid to high 80s for this paper.

A few originators have restarted production under tighter underwriting criteria and a cautious outlook. It will be interesting to see how these higher coupon mortgages (7 – 7.50% range) will be received by borrowers and will there be enough borrower demand to satisfy the volume required to bring Non-QM companies back to profitability. Big questions remain on how warehouse lenders will finance these loans with larger haircuts and fewer takeout investors.

Scratch & Dent
Our volume for the first five months in scratch & dent loans has already topped the amount we saw last year and we marketed a little over $1 billion in all of 2019. We currently have 40 deals for $222mm in the market.
As the pandemic hit, and the financial markets disruption began, we lost a number of investors and liquidity dried up in this sector. We had great concerns about prices and the capacity to clear this product, but new investors have entered the market and pricing has held in the low 80s to low 90s, depending on size and flaw, vs high 80s to high 90s before this all began.

There has been more talk of an increase in repurchase demands as underwriting guidelines tighten by the aggregators and agencies. With more loans going into forbearance, and an increase in delinquencies, these loans will be flagged for post-closing audits. With the agencies and investors taking a closer look at these loans, there will likely be a higher percentage of origination and documentation flaws triggering a repurchase claim.

Non-Performing and REOs
We traded a number of smaller non-performing pools and pricing has remained surprisingly strong given all the uncertainties in this market. When can you start foreclosure, how long will the process take, what will government do, and what will happen to home values? We don’t believe the value of homes will be worth more in the coming months.
We traded RAMS 106604, a 268 property pool of REOs. We had bids from 21 unique buyers with the pool trading to 10 of them. We have found geographically targeting investors enables you to haircut the bid offer spread while avoiding wholesale REO pricing and the time constraints associated with individual MLS sales.

In our view, loans only turn into REOs if they have been marked incorrectly, are in need of material repair, or have not been profitably resolved earlier in the process. We believe this period of time may allow asset managers a unique opportunity under the “cloud of the pandemic” to strategically unload some of these assets.

Enjoy the short week….It’s Wednesday again!

Another week behind us and there is good news and bad news to report. Another rough week for the job market.  We hit 14.7% unemployment, the highest level since the Great Depression, with more job losses expected in the coming months. Consumer spending and sentiment have dropped commensurate with the increase in unemployment.  Black Knight reported 4.1 million loans in forbearance and Fannie Mae is forecasting their 1 million loans in forbearance will double to 2 million. April month-end brought a spike in forbearance requests and May’s numbers are expected to be large as well. Big question on everyone’s mind is how this will ultimately affect mortgage defaults and the housing market. There is talk of the agencies increasing guarantee fees and LLPAs, bringing back the 25 basis point adverse market fee. The Obama 10 basis point payroll fee, set to expire in 2021, is expected to be extended. In addition, there continues to be talk of FHA increasing their premiums as well as the FHFA directing the
GSEs to limit certain loans and volumes. All of the aforementioned actions have resulted in aggregators adding overlays to their guidelines. On the good news side, agency originators are experiencing record volumes and margins. Agency TBA and MBS Spec pool markets have stabilized with the government pumping in cash and liquidity through various programs. There have been discussions of RMBS being eligible for inclusion in the TALF program, which has created some optimism for the jumbo and Non-QM markets. Scratch & Dent In the last 2 weeks, 26 new S&D pools were marketed for over $200mm and we have 13 S&D pools currently in the market.  We traded 28 pools during this same period. Buyer’s pricing of loans with a borrower forbearance request has been a major issue.  The most common outcome currently is a price reduction in line with the agency adjustments and/or a look back period following the forbearance
period. Fannie and Freddie have stopped purchasing loans greater than 6 months seasoned. For Fannie, 6 months from the first payment date and Freddie 6 months from the note date (the prior seasoning limit was 12 months). We anticipate seeing more adjustments from the Agencies in the coming months.

NPL 
Not much new activity in this space due to uncertain future property values and post pandemic (and forbearance) delinquency rates.  There are plenty of articles predicting a slowing housing market, as much as 20% in New York.  Fewer homes are being shown and market supply of available homes
remains low.  It seems early to be making too many predictions here as the story will unfold in the coming months.  Although it’s a small sample size, non-performing New York loans have been hit hardest – from what we see by as much as 30+%.  We marketed 6 NPL pools and a 268 REO pool, RAMS
106604, with an aggregate property value of $50mm. We received REO bids from 18 firms.  It is interesting to see how differently different institutional buyers view this sector.  We traded 4 NPL pools and a 22 REO pool. 

Non QM 
There is hope in this sector as Sprout and Angel Oak have announced they are inching back into the market with Non-QM 2.0. This new production will carry higher coupons, 700 minimum FICOs, maximum 70-75% LTVs, and updated employment, reserve documentation, and appraisals. One would think Non-QM 2.0 will put a price cap on the orphaned, seasoned, Non-QM production with their lower coupons, aged employment and appraisals, and increasing forbearance requests.  We hear of trades in
the 70s, but haven’t seen any that low. Sellers continue to hold on in hopes for 95 bids, with new funds and investors waiting for low 80’s.  Select product continues to trade in an approximate 2 point range ofYes, we’ve traded some loans at 86, and fewer at 94, but this price range hasn’t really changed since the first REIT liquidation cleared the market at 85 over a month ago.  We have traded a lot of Non-QM paper in the 88 to 92 price context.  The 1 billion pool we mentioned in our last commentary traded in low 90s. RAMS 106483, $113mm traded in the high 80s with a wide range of triggers for repricing related to forbearance and delinquency.  Originators with a more diversified platform seem content to sell whatever Non-QM product they have on their books, taking their lumps now, and moving on to enjoy the Non-QM like margins on the agency side of their business. We’ve seen some lenders use the government backed SBA programs to raise cash for payroll and payment to their warehouse lenders for extensions. As the orphaned Non-QM production continues to dwindle, we think new investors to the market waiting for low 80’s pricing may get shut out.  Two
sectors currently being overlooked are  business purpose loans and rental loans. We have marketed a couple hundred million of loans in these sectors with very limited interest. 

Jumbos 
Some positive news on the Jumbo front. The RMBS credit stack continues to grind a little tighter, but we are still well back of pre-crisis levels. There continues to be a risk premium in the market given the uncertainty of the job and housing markets and lack of any leverage. We received an ~97.50 bid for RAMS 106603, and have seen even higher bids for higher credit quality, full doc, low LTV, loans. It seems the larger pools have been absorbed by the market with smaller pools and loans representing the majority of what remains to be sold.  On the brighter side, from a friend in Texas – Phase 2 implemented this past weekend and we are off to a
roaring start! We went out to eat both nights, golfed with friends, and got a haircut!  But the eye opener for me was the spending frenzy witnessed in a crowded Nebraska Furniture Mart.  Taking part of a quote from Mark Twain, “the rumours of retail’s death may have been greatly exaggerated”