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