The traditional leaders of contributions to expanded-credit MBS slowed their activity in the second quarter, with smaller entities filling some of the void. The types of loans going into MBS also shifted somewhat. (Includes three data charts.)
Annaly is seeing strong returns from its aggregation and sales of non-agency mortgages even with weak demand in the secondary market. The REIT boosted its non-agency MBS issuance with plans for further growth.
MFA Financial took another loss in the second quarter as its holdings of non-QMs lost value and MBS with the loans was met with weak demand. The nonbank’s business-purpose lending unit also took a loss.
After a nearly 30-day lull, MBS with prime jumbos hit the market. An offering from Chase was significantly smaller than the issuance from the firm in the past. A number of expanded-credit MBS are also on offer.
Western Asset Management Company considering a sale of its non-agency REIT; Velocity offers another small-balance commercial MBS; PennyMac ramping up jumbo originations.
Non-agency lenders looking to sell mortgages with lower interest rates only have whole-loan sales as an outlet as MBS investors wait for new originations.
Sprout originated about half of the loans in a new $293.5 million expanded-credit MBS from an affiliate of Lone Star Funds. Fitch Ratings assessed the deal and suggested that risks tied to Sprout were limited.
Non-QMs are a double-edged sword for lenders, offering attractive margins along with extreme volatility risk. Industry analysts suggest demand for the loans in the secondary market will recover when lenders start selling mortgages with higher interest rates.
Two prominent non-QM lenders ceased operations in the past two weeks amid weak demand for the loans. Still, other market participants are stressing that they remain in strong operating positions.
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