Resi loan, MSR financing hit fever pitch on Wall Street - Debtwire

Resi loan, MSR financing hit fever pitch on Wall Street

07 July 2022 - 09:43 am UTC

Wall Street banks are courting mortgage loan and MSR investors with the most aggressive financing rates in years, fueling yet more competition in the sector, according to five investors.

Financing rates on re-performing loans in recent months have dipped as low as L+ 165bps from L+ 225 earlier this year, one investor said. The move represents an accelerated drop in costs from a year ago, when they were L+ 250bps-260bps, and approximately L+ 300bps two years ago, he said.

Like the investors, the bankers are likely sanguine about prospects for US housing, where limited supply and a tighter job market have kept home prices on the rise, the loan sources said. The number of potential customers is also rising, said two other investors, with extraordinary interest in the market seen at the ABS East conference in Miami earlier this week.

“We see some buyers that we haven’t customarily run into that are making pricing a little more challenging,” especially on larger RPL pools,” Luke Scolastico, a vice president of structured products at Athene Asset Management, said during a conference panel on Tuesday.

In terms of spread, higher-quality RPL pools have tightened by 75bps to S+ 175bps since the beginning of the year, a fourth investor said.

Two Harbors Investment Corp. has been thrilled by the competition in bank lending on MSRs, a major part of the REIT’s strategy.

Bill Greenberg, a managing director at Two Harbors, on Tuesday said his phone has been ringing off the hook with banks offering to finance the REIT’s growing MSR portfolio. Today’s rates are around L+ 360bps-380bps, and terms are extending to as long as five years, he said in an interview after speaking on another ABS East panel.

Two Harbors’ MSR portfolio UPB has increased to USD 84.8bn as of 2Q17 from USD 55.6bn a year earlier, company presentations show. As of August, it was expecting flows of an additional USD 2bn per month.

“Any flavor (of financing) you can think of is available today,” Greenberg said on the panel. “As an owner of MSRs, it’s obviously very welcome.”

by Al Yoon