Ann Gibbons of New Diligence Advisors on Emerging Non-QM Market
By MBA Insights Staff
October 1, 2018
Ann Gibbons is a Managing Director with New Diligence Advisors, Horsham, Pa., responsible for strategic business development and building client relationships.
Before forming NDA, Gibbons was a Senior Managing Director with Clayton Holdings, where she managed relationships with some of the firm's largest clients. She has more than 25 years of mortgage industry experience and her extensive sales efforts crossed multiple business lines, channels and company subsidiaries. Prior to joining Clayton, she was Chief Operating Officer of The Murrayhill Co., where she was a key contributor in developing the strategic direction and service offering of the company since its inception.
MBA INSIGHTS: After years of hearing that private-label securitization is coming back, it finally seems like it is. What factors brought this about?
ANN GIBBONS, NEW DILIGENCE ADVISORS: I think there are several factors at play here. First, the non-QM market is finally gaining traction. According to Nomura, non-QM securitizations approached $4 billion in 2017 and this year the pace has accelerated. Nomura expects total volume to come in between $10 and $11 billion in 2018, and possibly hit $16 billion in 2019. If the stars align, Nomura says non-QM issuance could top $100 billion within 10 years.
In addition to non-QM, we're also seeing other types of assets going into private-label deals: fix-and-flip, reverse mortgages and even conforming loans, which could have been sold to the GSEs.
Higher yields, a more bank-friendly regulatory environment and a need to replace shrinking refi volumes are all part of this story.
INSIGHTS: What does this mean for due diligence companies?
GIBBONS: It means increased demand for diligence, and the demand is coming from new participants, as well as from the early entrants in the non-QM space that are now trying to expand their footprints. Our clients are looking for capacity and expertise that can help them achieve their strategic goals for 2018 and beyond. They're looking at new types of collateral, such as subprime, single-family and bridge loans. Some clients are growing organically, while others are actively expanding through M&A. Additionally, the GSEs continue to bring Credit Risk Transfer deals to market regularly.
INSIGHTS: Are you seeing new investors coming into the correspondent space? How about institutional players-are they getting comfortable with mortgage again?
GIBBONS: Definitely. The new players range in size from small boutique firms to large money managers and insurance companies. Some of these firms have been on the sidelines for years, but they are now seeing the early entrants--like Angel Oak, Deephaven and Caliber--making a market in non-QM and bringing well-received, well-performing deals to market.
The Bureau of Consumer Financial Protection's new rules for smaller portfolio originators may also create new interest in originating and holding loans that would otherwise be non-QM.
Finally, some of the institutional players that had been burned during the mortgage crisis are testing the waters again. In the last six months, for example, a large insurance company set up a correspondent program to buy whole loans, as did a large money manager.
INSIGHTS: As new entrants test the waters in non-QM lending and securitization, will they have different needs from their diligence providers than the first movers?
GIBBONS: The new participants are looking for consultation in setting up their risk management programs and selecting their diligence partners. They are also looking for partners that can tailor their programs to clients' needs and provide greater flexibility and transparency.
Also, as we've discussed, they are testing the waters in terms of the products that they are buying and the securities--both public and private--that they may be considering.
INSIGHTS: Issuers are currently conducting 100% reviews on the deals that they're bringing to market. Do you see this changing? And what do you think a prudent level of sampling might be?
GIBBONS: I do think this industry can and needs to get to sampling by utilizing better technology and available data. There are a great deal of resources spent on gathering information on a loan and there needs to be a better way to combine the information to assess risk and provide transparency in the process. The level of sampling should not be one size fits all, but rather a reflection of a combination of variables based on factual measured data from the historical performance of the loans, type of collateral, and the competency of the originator/issuer bringing the loans to market.
INSIGHTS: The Bureau of Consumer Financial Protection is currently reviewing the QM rule and may broaden the definition of QM. If this happens, how could it impact the non-QM market?
GIBBONS: The BCFP has already relaxed the QM/non-QM thresholds for banks with less than $10 billion in assets. Now, any mortgage loan that they originate and are willing to hold in portfolio is automatically a QM loan. Similarly, the acting head of the BCFP, Mick Mulvaney, is on record as saying there shouldn't be a "one-size-fits-all" approach to QM. It is too early to tell whether this will be a priority for the administration and its nominee for director of the BCFP, but it certainly signals a willingness to consider a loosening of the QM rules. If that happens, it would most likely encourage lenders to expand their credit boxes and to re-consider new loan products. All of which would increase the demand for diligence-by both aggregators and issuers.
Also, Moody's recently released a report saying that the relaxation of these rules for smaller banks may create more competition with non-bank, specialty lenders in the non-QM space. This, in turn, may encourage them to relax their underwriting further and lead to greater demand for diligence.
INSIGHTS: The mix of loan products going into securities (both public and private) is changing. What is your take on this? And is it more challenging to due diligence on certain kinds of products? If so, which ones?
GIBBONS: I wouldn't say that certain kinds of securities are more difficult than others, but the scope of the reviews can vary significantly and need to be tailored to the assets. Take business purpose loans, for example. The borrowers tend to have more complex income and credit profiles, which often requires a more extensive credit review. Frequently, there is also a review of the borrower's track record in fix-and-flip and, unlike other non-QM products, business purpose loans are not subject to the same compliance requirements.
Proprietary reverse mortgages are very different from forward mortgages. While they have some similarities with the traditional HECM product-primarily the age of the borrowers-at the same time there are significant program variations. These reviews tend to be program compliance and valuation focused.
Also, we're seeing the pooling of different kinds of loans, for example GSE-eligible and private jumbo, into single securities; so, the scripts need to recognize this.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at email@example.com; or Michael Tucker, editorial manager, at firstname.lastname@example.org.)