Whole Loan Update 04/10/20

We hope everyone had a nice holiday weekend.
Another week behind us and more weeks of quarantine in front of us as California extended shelter at home until May 15. Tighter restrictions for all of us across America. We’ll try to keep it short and to the

point as there is ample news, headlines, and content to keep everyone busy. Except for sports of course! 

Last week was another busy, albeit choppy, week. Each trading day seemed to bring ups and downs. Fed
MBS buying stabilized current coupon securities to a large extent, but there are still dislocations like GNMA 3 and 3.5 pricing inverted. High balance loans continue to be hammered by MBS investors and
cash window pricing. MBS spec pools remain depressed and low FICO FHA and VA loans have become the latest product to lose support. Supply of loans looking for an outlet in the secondary market
continues to increase.  The wave of forbearance requests from borrowers looks to be massive. According to the MBA, forbearance requests grew by 1,270% between the week of March 2 and the week of March 16,
and another 1,896% between the week of March 16 and the week of March 30. Late Friday, GNMA finally announced the much-anticipated servicer liquidly facility (“of last resort”) to handle servicer advance shortfalls due to forbearance requests.  FNMA started calling margin on its hedging customers for positions over $3mm, and reduced cash window pricing between 40bps and 80bps on current production in an attempt to manage volume. JP Morgan warehouse lending increased haircuts by 15% on loans with FICOs less than 700. FHFA Chief, Mark Calabria, stated independent mortgage companies aren’t too big to fail, and that he doesn’t expect a large increase in delinquencies due to the COVID-19 pandemic. He expects lending and underwriting standards to tighten making it more difficult for certain borrowers to qualify for a new mortgage. 

Non-QM & Jumbo
There continues to be plenty of supply of Non-QM on the market. Large pools, as well as an abundance of small pools. We’ve marketed 78 pools for $2.9BB since the start of this from lenders across the country, trading a number of various sizes. Buyers continue to be selective in this market and are targeting high quality loan attributes such as LTV, FICO, DTI and reserves. Credit spreads tightened, more distressed securities were absorbed, and we began seeing some cross over investors enter the whole
loan market. Pricing has ranged between 80 and 95. We see the smaller pools mostly frequently trading in the mid-80s. We are encouraging sellers to hit bids in this context given the limited liquidity. The larger pool sellers continue to seek low 90s for their portfolios. There was a large liquidation pool of ~$630mm that traded in the low 90s at the end of last week.  The pool was comprised primarily of high quality, jumbo prime, plus a 100mm+ Non-QM portion. We also had an ~$40mm pool trade in the low
90s.  This was not a liquidation, but the result of pressure from seller’s warehouse bank to demonstrate liquidity.

Scratch & Dent & Orphaned Loans
More supply continues to come to market while liquidity to absorb supply declined. Investors are leaving the market as more margin calls and market uncertainty caused them to shut down their purchase programs and cancel trades. We continue to see pools from originators pressed for cash due
to TBA and MSR margin calls, growing warehouse haircuts, repurchase demands, and the coming calls for early premium recapture notifications. We’ve marketed 83 pools for $724mm since the start of this and have traded a little over a third. This product continues to trade mostly in the 80s with select very high credit quality, and low ltv, loans in the low and mid 90s. We are expecting more supply in the coming weeks, including some larger pools from larger originators experiencing warehouse pressure. To
make matters even more difficult for originators, loans with forbearance requests are not currently eligible for delivery to the agencies. If this position is not reversed, it could bring forth a flood of supply
to the market that could have a major impact on prices and result in more losses for sellers. In addition, it is still uncertain what the migration rate of loans from forbearance request to true delinquency and default, will be. 

Fix & Flip and Bridge
A handful of pools were offered with pricing in the high 70s to high 80s. Pool 106504 ($2.9MM fix & flip) bids this week. We expect to see more NPLs in this sector Pool 106485 ($20mm of NPL fix & flip) bid Friday.

NPLs and RPLs
2 pools, 106496 and 106497, bid Friday with pricing ranging from low 70s to high 80s.  A few RPL buyers reminded us they will look at large RPL pools as they focus on seasoned collateral as compared to newly originated product. 

Limited activity this week.  It may be potential sellers assessing their April rents and determining next steps.

Please share with us any of your thoughts and color. We will end this week’s letter with an inspirational quote: Life is like riding a bicycle.  To keep your balance, you must keep moving.  Albert Einstein