Examining Market Conditions

MAXEX is the first digital mortgage exchange to enable buying and selling residential loans through a single clearinghouse. The company connects bank and non-bank lenders with premier investors including Wall Street banks, real estate investment trusts and insurance companies to enable faster, more efficient liquidity. MAXEX is an Atlanta-based fintech company led by mortgage experts and financially backed by leading private equity and capital markets investors. The company also recently launched a monthly market report to track market conditions. Greg Richardson, Chief Commercial Officer at MAXEX talked with our editors about how he sees the market today.

Q: Why did you get started in mortgage?

GREG RICHARDSON: I was an accounting guy working in corporate finance. I got moved over to the mortgage accounting group working on secondary marketing. They liked me and they wanted me to come up there and learn mortgage trading. That’s how I first got in the mortgage world and I’ve been in it ever since.

Q: How has the industry changed?

GREG RICHARDSON: I will tell you that there has been a significant amount of change on the frontend leveraging technology, digitizing, APIs, and getting faster access to borrower information. Mortgage is still a very paper intensive business, as we all know, but we have had a lot of technological advances that have made it simpler to originate and more cost effective, as well.

Q: Now let’s turn to your most recent data report. MAXEX found that rates went down. Why do you think that happened and will that continue?

GREG RICHARDSON: That’s a great question. Our rates are driven by the underlying 10-year treasury movement and that really peeked at a high at the end of March around 1.77% and has gotten progressively lower since. There are a couple reasons why rates on the jumbo side, which is primarily what we purchase, have come down. First, there is lots and lots of liquidity that is driving demand for mortgage bonds. We talk about this trend in the market report and show activity in the RMBS world where we’ve exceeded all the issuances for last year already. Further, we expect more to come throughout the rest of the year, as well. What’s interesting is the diversity of that issuance is helping supply. What does that mean? It is helping jumbo rates go down as compared to agency rates. I expect what happens with the economy will drive rates going forward. We are all concerned about the delta variant and we’re looking at inflation. The Fed doesn’t seem concerned about inflation yet, but they are keeping their eyes on it. Also, we posted good jobs numbers, which we’ll be watching closely. If we see another big jobs number next month the Fed will start tapering their bond purchases. When the pandemic started, the Fed stepped in and started buying MBS and the whole chatter now is guessing when the Fed will start tapering that.

Q: Your data showed that RMBS issuance continues to be strong. Explain that trend for our readers.

GREG RICHARDSON: What’s really going on there is that as rates fell during the initial stage of the pandemic, there were a lot of investors on the sidelines looking to get in mortgage. So, they bought non-agency because they were looking for more yield. We started to see a flurry of activity toward the end of 2020, and we continue to see that happening now. As rates back up those bonds will trade at a spread to a corresponding agency security. Those spreads widened so the rates were higher on a jumbo as compared to Fannie or Freddie, but as supply wanes I expect those spreads to narrow. Do I expect to see that anytime soon? No, but rates will follow the agencies.

Q: Your data also showed that average loan amounts were down by $117k. Why do you think that is?

GREG RICHARDSON: That was the big surprise to me. Lots of this is centered around the flow of activity through the exchange and it is also product based. We definitely see that as we’ve added more seller participants on the exchange that are also more geographically dispersed, we’ve seen a push away from states like California. Those deals amounted to 50% of the loans on the exchange but that’s now at about 30%. The magnitude of the pushback away from California is one contributor to this trend. The other contributor is basically that the CFPB came in a revisited the QM definition to get a better balance between a consumer’s ability to repay and access to affordable credit. The final rule went into effect in March and removed Appendix Q, which limits the DTI to 43%, and more closely aligned QM with the agencies. What does that mean? It allows jumbo agencies to use DU and LP, so it becomes a heck of a lot more efficient to originate those loans. As a result, we’ve seen huge movement to what we call our Jumbo Express program, which utilizes Fannie and Freddie AUS.

Q: Cash-out refis are still very strong according to your data. Do you expect that to continue?

GREG RICHARDSON: As long as housing continues on the path it has been on, people are going to look at taking out equity when they have the opportunity. As rates head higher rate-term refis might start to go down. Regardless though, there will still be a decent amount of cash-out activity.

Q: Journalists are always looking for the headline. If you were writing a story about your data report, what do you think would be the headline?

GREG RICHARDSON: We have 250 participants, 20-plus buyers, 225-plus sellers, that trade loans on the exchange to the tune of over $22 billion. We have lots of data in a centralized place that is well organized that you can’t see anywhere else in the industry.

Q: Last question, going forward what can our readers expect from your data report and MAXEX as a company?

GREG RICHARDSON: We are adding more buyers that focus on the ARM side. What I would say is that as rates go higher ARMs will increase. So, make sure you have a diverse product group that are more than just a 30-year fixed.

INSIDER PROFILE

Greg Richardson is Chief Commercial Officer at MAXEX. He has more than 30 years of professional experience in capital markets including trading, banking asset and portfolio management, mortgage banking, secondary marketing and accounting.  Most recently he was EVP and Senior Advisory of Capital Markets for Movement Mortgage where he was responsible for executing their secondary market activities that included overall asset liquidity and he also oversaw hedging, risk management, pricing and securitization of $12B in annual origination.  He was also a founding member and partner of Altamire Mortgage Partners, LLC. Prior to that he held senior lever positions that included Director of Whole Loan Trading at Wells Fargo Securities, SVP, Bank Portfolio/Asset Manager for Wachovia Corporation, and SVP of Secondary Marketing for Wachovia Mortgage Corp.  Additionally, he held positions at Opus Capital and MDMC. He earned a B.S. in Accounting from the University of North Carolina, Charlotte.