• Key Insight: Here's why there are reports of some issuers backing away from bringing securitizations to market and what it means for mortgage lenders.
• What's at Stake: Investor demand has weakened for certain mortgage-related assets and mortgage lenders are looking for ways to cope.
• Expert Quote: "Don't have just one outlet..." — Nathan Regehr, Regehr Capital Markets Advisory 

Overview bullets generated by AI with editorial review.   

Hesitancy to issue some securitizations in a tougher market is intensifying the need for nonbank mortgage lenders to find ways to cope with shifting investor demand.

Figure recently backed off on issuing a private-label securitization, Freddie Mac reportedly paused a multifamily mortgage transaction and at least one two commercial real estate deals stalled due to investor interest in being paid to take on mortgage risk in a bond market where Treasury yields have been volatile, according to Bloomberg reports.

The circumstances demonstrate why lenders increasingly benefit by having multiple markets and investors ready to potentially buy their loans.

"Don't have just one outlet for the product. Make sure you have at least two or three, so that if something does go bad with the one investor's demand, you have others," Nathan Regehr, principal at Regehr Capital Markets Advisory, said in an interview.

Figure's decision to back off a securitization, which it confirmed occurred because it got a better price in the whole loan market, supports that point.

The fintech company also noted that it operates a private credit market aimed at giving other lenders multiple loan outlets and recently has split its activity between whole loan and securitized markets.

"Since the start of September, we've completed more than $1 billion across three securitizations and another $1 billion across 24 whole-loan sales," Figure said in an emailed statement.

Figure also noted recently in an X post that it recently found "institutional whole-loan bids are offering better pricing than securitization markets."

However, other experts said the whole loan bid's relative attractiveness to securitizations varies depending on the product and situation. Also, whole loan bidders aren't necessarily offering a premium in all circumstances.

Broader perspectives

"The largest buyers of, for example, non-QM, are insurance companies, all of whom know the structured market very well," David Akre, principal, Whole Loan Capital, said in an email, adding that this means "the odds of getting a better execution in whole loans are slim."

Why some deals are stalling, other private mortgage-related securitizations are still coming to market, so lenders should compare what's offered in that market to whole loan executions for themselves.

"I hear those same anecdotes of some non-agency securitizations being delayed, but I think you're continuing to see a fairly significant volume being done," said Eric Hagen, managing director at BTIG, in an interview.

Specified pools are another area where there have been reports of deals being disrupted or priced lower as the Fed has hiked rates but some investor interest persists.

"In every market, some spec pools are going to do well," Regehr said. "New York loans are performing better and they have larger loan amounts and lower risk, so those still might get pay-ups."

However, some spec pools are in a situation where the investor may not really want the product anymore. 

"In this kind of market, you either have to accept the price or maybe say no and come back later if you can hold on to those pools for a little bit on your warehouse line," Regehr said. "If your borrowing cost is significantly lower than the interest rates on the loan, you might as well keep the loan there."

While waiting to sell or securitize until the market improves can have some benefits, it also may have some downsides.

The cost to warehouse the loan is one to consider. The other is how a delay affects counterparties and whether or not there are negative impacts that affect the business relationship in the future. 

"It might affect them going forward," Walt Schmidt, senior vice president, mortgage strategies, at FHN Financial said in an interview.