Building mortgage strategy in 2022: Meeting volatility with flexibility

For the last two years the mortgage industry has been beyond flush with cash. The economic policies of the COVID-19 pandemic helped push total origination volume to more than $4 trillion in 2020 and 2021 as mortgage interest rates held at historic lows and families created extreme demand as they flocked to the suburbs. But as the concern about COVID waned, Russia invaded Ukraine and inflation surged, the economy reversed course. The Federal Reserve instituted its first rate hike in three years and the 10-year Treasury note yield skyrocketed from 1.8% at the end of February to over 2.35% at the end of March.

This extreme shift in the market caused more than just a ripple of volatility with mortgage lenders and investors being forced to nimbly adjust strategy to keep pipelines moving. That volatility is best met with flexibility which is what we have seen play out at MAXEX.

Originators are broadening product offerings to offset some of the reduction in originations. Expanded-credit loans are starting to move the needle for many investors and originators albeit at wider spreads and much higher rates as issuance increased in this section quarter-over-quarter. Debt service coverage ratio (DSCR) loans are being worked into many originator’s product offerings and are expected to be available through the exchange in Q2.

Prime jumbo securitizations have gone from a massive resurgence in 2021 to nearly nonexistent with just two deals printing in March. However, we are starting to see some indication of a resurgence in investor issuance backed by agency-eligible loans. Many of these transactions continue to have some seasoning with newer originations starting to show up as liquidity away from the agencies for certain loans with specific criteria. Five deals priced in March with volume nearly $1 billion higher than February.

We have also seen an increase in the number of second home loans being traded through the exchange to avoid the LLPA increase instituted by the FHFA for second home and high balance loans delivered to the agencies after April 1.

Finding alternative liquidity sources will be crucial for originators as we move through what is expected to be continued volatility in 2022. Being able to meet volatility with a flexible strategy can help offset a pipeline slowed down by rising rates and expensive home prices.


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