How will mortgage investment change as banks’ share shrinks?

Banks moving further away from certain housing finance assets could reshape various parts of the market, multiple speakers at recent meetings said. mortgage-backed securities said the conference.

Richard Koss, Recursion’s principal research officer, told attendees during Inviso’s presentation on macroeconomic data at the MBS Forum that the share of government-related remittances to non-banks in the service sector is on the rise, especially in the service sector. He said prices have been particularly high recently.

Bank-to-nonbank transactions accounted for nearly 12% to 20% of remittances based on number of loans in the past three quarters, compared to a range of approximately 4% to 17% in the previous 18 months. was revealed through recursion analysis. Data from Ginnie Mae, Fannie Mae, and Freddie Mac.

Deposit transactions in nonbank transactions by number of loans became more pronounced in April and May, accounting for approximately 24% to 32% of mortgage servicing rights transactions based on title transfers tracked on the first of each month. .

“We’ve seen a pretty sharp spike in the selling of bank stocks,” Koss said.

pending late Basel capital proposals and 2023 banking crisis Carl Bell, senior managing director at Invictus Capital Partners, said in another session at the conference that it continues to make savers think twice about housing finance in general.

Speaking on the market outlook during a panel discussion, Bell said: “The long-term trend is for banks to move away from mortgage lending. We expect banks to continue to move away from mortgage lending.” said.

Wells Fargo managing director Kevin Jackson said the future of the market will depend on how long depository institutions continue to invest in government-related MBS as the Federal Reserve depletes its portfolio. said it is particularly important for

Focusing on agency MBS, Mr. Jackson said that while asset management companies and others have helped fill this gap, investors around the world are paying attention to the extent to which these buyers will continue to make efforts. This was stated in the session.

“The very idea that asset managers will continue to manage the MBS market and remain overweight is a big question,” he said.

But now that the pandemic and rising interest rates are no longer an issue, other players in the private sector, such as insurance companies, are also becoming more active in mortgage securitization investments, Bell said.

“If you listen to the space of large private credit investment companies, all of them are working across asset classes,” he said, “and just recently they’ve been talking about how the big opportunity is asset-based lending. “There is,” he said.

“Mortgage lending is the world’s largest asset-based lending market,” Bell added.

The transition to non-banks can pose challenges in developing lending products, as they typically do not have the access to balance sheets that loan depositories do. Nevertheless, there are some less traditional mortgage-related asset types that are growing or showing potential.

Home equity securitization is starting to expand; proposed pilot Government-backed company Freddie Mac could add CES’ limited global buyers to the market by testing the possibility of programmatic buying for certain closed-end seconds.

Jack Cahan, senior managing director at Kroll Bond Rating Agency, spoke on the return outlook during a panel discussion and said Freddie’s proposal “would open up liquidity.” KBRA was recently released the study It is estimated that nearly 60% of CES in the civilian market could be eligible for a Freddy pilot.

Securitization of home equity lines of credit also shows potential for growth, some panelists said, as it has been dormant for a long time but is making a comeback.

“For HELOC securitization, the main challenge is really the draw funding,” said Sagar Kongettila, managing director of structured finance at Morningstar DBRS.

Investment contracts, which are debt-free home equity contracts, are also part of the market with growth potential, according to speakers on a separate panel on emerging assets.

But Haukur Gudamsson, a partner at the law firm Mayer Brown, said it’s also something regulators are paying more attention to, and some states may require callers to be licensed. It pointed out.

In addition, improvements in the program’s regulations could lead to an increase in property-rated clean energy loans, said James Vergara, Home Run Financing’s chief operating officer and chief investment officer.

But he said there are still tensions with the GSEs because they are considered similar to tax obligations and have super liens that compete with traditional primary mortgages purchased by Freddie and its larger rival Fannie Mae. admitted that.

Another asset that may gain traction in the mortgage market is typically High level of housing equity in the market According to one panelist, these cards could serve as vehicles for prepaid, debt, credit, and rewards accounts.

Alex Song, co-founder of MCard Technologies, said mortgage points could be attractive to servicers and originators because they can be used as a way to win back borrowers as customers.