It’s hard to believe that the COVID pandemic was six years ago with its increase in deaths. For our biz, we switched to “work from home,” among other changes. Along those lines, I received this note: “Rob, are you hearing about a concern among lenders about the liquidity of the non-QM sector? As in a repeat of March 2020 when many non-QM lenders suspended their programs due to volatile market conditions caused by the COVID-19 pandemic, hurting the ability to submit, underwrite, lock, or fund non-QM loans?” Personally, I don’t foresee that, but liquidity should always be discussion topic. In my 40+ capital markets years, I’ve never seen anyone hedge credit risk.
Hedging a non-QM pipeline is a complicated question. If you think about the risk-free baseline, Treasury securities come to mind. For Agency loans, let’s say QM loans, there’s a spread above Treasury securities based on credit risk and prepayment risk. For non-QM loans, there’s another spread above QM loans, primarily based on credit but also loan size, geography, etc. Be careful out there! (Today’s podcast can be found here and this week’s ‘casts are sponsored by Optimal Blue. The only end-to-end capital markets platform built to power performance, precision, and profitability. Modern. Proven. Optimal Blue. Hear an interview with economist Elliot Eisenberg on trends seen across economic data and how high the bar has become for the Fed to justify easing if headline resilience persists.) Products, Services, and Software for Brokers and Lenders.
