As banks further distance themselves from certain residential finance assets, various parts of the market could be reshaped, multiple speakers at a recent
In servicing, the share of government-related transfers to nonbanks have been trending upward and have been particularly high recently, Richard Koss, chief research officer at Recursion Co., told attendees during a presentation on macroeconomic data at Invisso's MBS Forum.
Bank to nonbank trades have made up nearly 12% to almost 20% of transfers based on loan count in the past three quarters as compared to a range of around 4% to 17% in the 18-month period just prior, Recursion found in analyzing data from Ginnie Mae, Fannie Mae and Freddie Mac.
Those depository to nonbank trades by loan count became even more prominent during April and May, constituting roughly 24% to 32% of mortgage-servicing rights trades based on ownership transfers tracked on the first day of each month.
"We've seen a pretty good spike of bank selling," Koss said.
Both the pending Basel endgame capital proposal and
"The long-term trend is banks pulling back from mortgages. We expect banks to continue to pull back," Bell said while speaking on a panel about the outlook for the market.
The extent to which depositories' investment in government-related MBS continues is particularly important to the future of that market as the Federal Reserve lets its portfolio run off, said Kevin Jackson, a managing director at Wells Fargo.
So far money managers and others have helped fill the gap but global investors are watching the extent to which those buyers will continue to do so going forward, Jackson said during a session focused on agency MBS.
"This whole idea that money managers will continue to carry the MBS market, and they'll remain as overweight as they are is a huge question," he said.
However, there also are other players in the private sector such as insurers that are becoming more active in securitized mortgage investments now that the pandemic and the rate run-up aren't the questions they were, said Bell.
"If you listen to any of the large, private credit investment firm areas, all of them go across asset classes. Most recently they've been talking about how the big opportunity is asset-based lending," he said.
"Mortgage lending is the biggest asset-based lending market globally," Bell added.
The shift toward nonbanks can challenge loan product development because they typically don't have access to the kind of balance sheet lending depositories can do. Nevertheless, there are some less traditional mortgage-related asset types that are growing or that show potential.
Home equity securitizations have started to expand and
Freddie's proposal would "open up liquidity," said Jack Kahan, senior managing director at Kroll Bond Rating Agency, while speaking on a panel about the outlook for returns. KBRA recently released
Also showing some growth potential are securitizations of home equity lines of credit, which have been dormant for a long time and are making a comeback, some panelists said.
"For HELOC securitizations, the main challenge is really the funding of draws," said Sagar Kongettira, managing director of structured finance at Morningstar DBRS
Investment contracts, which are non-debt home equity agreements, are another part of the market with growth potential, according to speakers on a separate panel about emerging assets.
However, they also are something that regulators are paying more attention to, said Haukur Gudmundsson, a partner at law firm Mayer Brown, noting that in some states originators may need to be licensed.
In addition, Property Assessed Clean Energy loans may increase due to legal and regulatory improvements to the program, said James Vergara, chief operating officer and chief investment officer of Home Run Financing
However, he acknowledged there is still tension with the GSEs over them because they're considered similar to tax obligations and have super-liens that conflict with those on the traditional primary mortgages Freddie and larger competitor Fannie Mae buy.
Another asset that could gain some traction in the mortgage market given what's generally a
These may appeal to servicers and originators because mortgage points can be used as a vehicle for recapturing borrowers as customers, said Alex Song, co-founder of Mcard Technologies.
