The appetite for riskier mortgages is rising, and a small cadre of investment firms is ready to feed it.
Angel Oak Capital Advisors just announced its second rated securitization of nonprime residential mortgages this year, a deal worth just more than $210 million and its largest ever. Its first deal was slightly less, but demand from borrowers and investors alike is growing, and the securitizations are growing with it.
Angel Oak is one of very few firms offering these private-label mortgage-backed securities — the ones that were so very popular during the last housing boom and which were later blamed for the financial crisis.
Today's nonprime loans, however, are nothing like the ones of the past. The government cracked down on faulty loan products, those with low teaser rates, negative amortization and no documentation. Still, for the past decade investors wouldn't touch anything that wasn't government-backed. Only now are they seeing value and dipping their toes in again.
The number of nonprime mortgage-backed securities "skyrocketed" in the second quarter of this year, according to Inside Mortgage Finance — a total of $1.08 billion of MBS backed by nonprime home loans. That was the strongest quarter for the sector since the financial crisis. It is still, however, nothing compared with the volume that caused the housing crash.
"At one point during the housing boom, we had a third of all mortgage originations that were nonprime [subprime or Alt-A, the latter having low or no documentation]. We're not going to be even 5 percent of the market if we have a record year this year. It still has a long, long way to go," said Guy Cecala, CEO of Inside Mortgage Finance.