Up to $ 20 billion in home loans to investors for the private market

The substantial volume of investor loans that government-funded companies will no longer purchase can probably be absorbed into the private market, suggests a recent report.

About $ 10 billion to $ 20 billion per year in unoccupied mortgages will need a new outlet after Fannie Mae and Freddie Mac’s 7% cap on purchases of these loans per year, the Kroll Bond Rating Agency. While this estimate is significant, it cannot overwhelm the non-agency market or even necessarily hurt interest rates, analysts said.

This suggests that the shift from investor lending to the private market may not disrupt large players who already have access to securitization pipelines.

“I don’t think we have a fear that the private market may not be able to absorb even the full amount,” Jack Kahan, senior managing director of KBRA, said in an interview.

It’s too early to say what the long-term implications of the price change will be, but Kahan said the private label market’s relatively large appetite for home loans to investors over time suggests that this may not be the case. is not necessarily a negative result.

“While any kind of change in the execution of these loans would potentially increase the risk of some rates going up on this product, the flip side is also possible. We could see that the private market can buy this product and that its price could be better than that of the agencies, ”he said.

The share of unoccupied loans in the private label market fell last year, likely due to increased credit cautiousness amid the pandemic, but previously it was over. a recovery that it could return as the economy shows signs of recovery. Even though last year’s NOO’s 16.7% share of the private securitized mortgage market was down from 26.3% a year earlier, 2020’s percentage was historically high.

While the prognosis for the ability of the private label market to absorb investor loans is relatively good, a temporary absorption challenge could arise along the way, as this will represent a substantial share of the current market.

“If the amount that is changing is that large and the market is changing rapidly, the transition may take time,” Kahan said.

Fannie Mae’s management said the agency had not seen much change in the volume of unoccupied home loans it was purchasing, suggesting there was no drastic change. in the wider market to date.

“We have yet to see a significant impact on acquisitions,” said Hugh Frater, CEO of Fannie Mae, at a recent press briefing held in conjunction with the release of first quarter results.

however, small initiators who do not have established access to private securitization outlets may face transient disruption, Kahan said.

Also, given some credit sensitivity in the market, the appetite for loans without full documentation might differ from that for loans with more standard underwriting, said Armine Karajyan, director of KBRA. Top agency-eligible investment properties have performed well even during the pandemic, which will likely encourage private market investment, Karajyan said.

While consumer demand has been particularly strong for second homes and investment property has dominated in recent private securitizations, the historical average of the split between the two categories has been around 50-50, so that demand from non-agency investors is likely to be healthy for both. types of properties, Kahan said.

The demand for second homes has been double that of primary homes, according to a recent Redfin report. Although the year-over-year increase is overstated due to the initial impact of the pandemic last April, the company found that demand for second homes increased 178% year-over-year. ‘other in April 2021, compared to a 78% increase in demand for primary residences.


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