Earlier this week I went on a rant about the subprime (Non-QM) craze and how the MBA conference really opened my eyes to what was going on in that space. While I was at the conference I was speaking with another director at our company about all the Non-QM advertising that we had been seeing. Seemingly overcome with frustration about the product… he says to me “…yea Matt I see the signs, but who is ACTUALLY closing these loans and who is buying them”? I didn’t know how to respond because I really did not have any idea A.) who was closing these loans or B.) who is buying them in the secondary market? The only thing I did know was that I was looking at a billboard behind a booth that had the words NON-PRIME – ONE DAY OUT OF FORECLOSURE - $2M MAX LOAN AMOUNT.
This morning as I enjoyed my bowl of Raisin Bran Crunch while replays of golfer Tony Finau’s ankle dislocation played in the background I came across an article from HousingWire detailing the securitization of a $328.78M portfolio. The deal is made up of approximately 81% non-QM loans while the remaining 19% is made up of non-owner-occupied properties and loans for foreign nations who do not live in the United States. The article even used the word “tranche” and “AAA” rating. I… uh… I’m at a loss for words? Idk what to say… ummm haven’t we already seen this part of the play? Now, I won’t get into the details of which firm is doing the securitization and which mortgage companies are originating the loans backed by these securities (spoiler alert… it’s in the article), but this is a head scratcher for me. The article even throws out a quote about the soundness of the securitizations they’ve been doing and how the investor base is growing. Okay… so where can I buy some Credit Default Swaps? Is that still a thing or did we forget about the impact that those played in 2008 as well?
Look… I don’t know the first thing about securities or swaps or anything for that matter, but there is something bubbling underneath our industry like the pink river from Ghostbusters 2. You can feel it. The market is tough right now and it’s easy to chase down margins by expanding your credit box. Like I said I don’t know much but what I do know is that history tends to repeat itself and to quote Mr. Gekko:
“…greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind. And greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the USA.”
Tariffs, tax reform, housing reform, decreased regulation, tranches with AAA ratings backed by non-QM loans and foreign national debt… does that sound like greed to you? Are we getting greedy again? I guess we’ll have to wait and see…
Talk to you soon!
MJ
Photo by Alice Pasqual on Unsplash
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.