The changing landscape of mortgage-backed securities

The next evolution of securitizations could come in 2022 to fulfill increasing investor demand for ESG-compliant products. Environmental, Social and Governance (ESG) compliance in the mortgage space has been difficult to achieve due to the archaic and inefficient way mortgage loans are traded between financial institutions. Through standardization of guidelines and contracts, it is possible to tap into the multi-trillion dollar housing industry to encourage this kind of socially responsible lending.

MAXEX has been at the forefront of creating standardized ESG-compliant loan programs. In December 2020, MAXEX launched the Opportunity program to support minority, women and veteran-owned lenders. In March 2021 the company followed up with the Sustainable program which supports green energy solutions. Investors on the platform pay up as much as 50 basis points for these loans.

As highlighted in the most recent Market Report, originator interest in the Opportunity and Sustainable programs helped ESG loans make up 26% of loan volume traded through the exchange in November. Both the Opportunity Express and Sustainable Express programs allow for loan limits up to $3 million, agency high-balance and the ability for originators to use their existing automated underwriting systems. Furthermore, the Sustainable program’s minimum loan amount is $400,000 which opens it up to a wider range of borrowers.

As the programs continue to gain traction and with the addition of another ESG buyer next year, it is likely we will see the first true ESG-compliant RMBS issuance happen in 2022.


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