Global lender Citigroup capitalizes on a buoyant U.S. market for mortgages that has been battered by the pandemic.
The bank, through its residential mortgage-backed securities conduit, Citigroup Mortgage Trust, has securitized some 45,000 reproductive loans valued in aggregate at $6.8 billion through five private label offerings since the start of the year to the end of October, fitch reviews reports show. And these really are scratch loans.
Fitch reports show that between 76% and 98% of mortgages in securitized loan pools have been modified. In addition, between 1% and 12% of the loans in the five deals were 30 days past due by the end of October deadline. And an additional 25% to 55% of loans in the pools of the five transactions – although current at the end of October – have experienced one or more defaults in the past 24 months.
Yet there is huge demand for these reproductive loans and the securities issued against them.
“There’s always an appetite for distressed parcels in the secondary market,” said Rick Sharga, executive vice president of marketing for the real estate search firm. RealtyTrac. “People look for stocks that they feel have the risk-reward ratio to their liking. And there are very few non-performing loans available, so reproductive packages have, more or less, replaced non-performing loans.
A reproductive loan is a mortgage where a borrower’s payment has been missed but is then resumed for a period of time. However, government-mandated forbearances during the pandemic have allowed landlords who miss payments to avoid the urgency of the normal foreclosure pipeline, which typically kicks into high gear once non-execution status is reached after 90 days of non-payment.
According to Tom Piercy, CEO of Incenter Mortgage Advisors. Piercy explained that many homeowners who fell behind on their mortgage payments because of the pandemic are now recovering, either through government assistance or because they are now reemployed.
“As the economy begins to show improvement and moratoriums are lifted on foreclosures,” he added, “the forecast is for the reproductive market to maintain this high volume for many months to come” .
the Mortgage Bankers Association reports that the total number of mortgages in forbearance fell six basis points as of October 24, the latest figures available – to 2.15% of mortgage managers’ portfolio volume, from 2.21% the previous week. MBA estimates that 1.1 million homeowners are currently in forbearance plans – the existing pipeline for future repeatable loans.
“Forbearance outflows slowed in late October to the slowest pace since late August,” said Mike Fratantoni, MBA’s senior vice president and chief economist. “With so many borrowers reaching the end of their 18-month forbearance period, we expect a steady pace of outflows in November.”
Citigroup spokesman Scott Helfman declined to comment on the lender’s five private label offerings backed by repeatable loans or whether any additional securitizations were underway this year. Still, it looks like there are plenty of opportunities ahead in the short-term market.
“Our fiscal year just ended in September, and it was by far our best year in terms of trading volumes in both trade count and nominal balance,” said John Toohig, managing director of whole loan trading at Raymond James. “[Lenders] at the moment, an avalanche of liquidity is coming through deposits and the demand for loans is relatively weak.
“…So there’s a lot of money out there for [lenders] who just want to buy loans,” he added. “It’s a good place to be if you’re a trading desk.”
And the private label market isn’t the only sector to benefit from the end of pandemic forbearance plans. Fannie Mae year-to-date through October, has marketed some 100,000 recurring loans across five offerings with a total outstanding principal balance of $14.5 billion, according to an analysis of sponsored company records by the government.
Freddie Mac has gone down a securitization route for its pools of replicable loans instead of selling them as whole loans. Year-to-date through October, Freddie offered five deals backed by replicable loan pools with a combined value of about $4.3 billion.
“Normally, if you’re 12 months behind on a loan, you’re no longer delinquent – you’ve already been foreclosed,” Sharga said. “But in today’s market, if you’re forbearing and haven’t paid for 12 months, you’re considered a delinquent at best.
“But if you make a deal with your repairman, the next day your current. And so as people come off the forbearance lists, those delinquency numbers keep going down.
Even though the current reproductive loan market is strong and experts expect it to remain frothy well into next year, there are potential headwinds that could impact the value of mortgage collateral. long-term, according to Fitch Ratings. It includes the following home price sustainability predictions in its pre-sale ratings report for Citigroup’s most recent repeat loan securitization, which was released in late October.
“Fitch views real estate price values from this [Citigroup loan] pool at 11.6% above a long-term sustainable level (vs. 11.7% nationally),” the Fitch report said. “The underlying fundamentals are not keeping pace with price growth, which is the result of an imbalance between supply and demand driven by low inventory, low mortgage rates and new buyers entering the market. These trends have led to significant increases in home prices over the past year, with home prices rising 18.6% year-over-year nationally as of June 2021. »