Citigroup Tackles Burning Reproductive Loan Market

Global lender Citigroup capitalizes on a vibrant US market for mortgages that have been plagued by the pandemic.

The bank, through its residential mortgage-backed securities conduit, Citigroup Mortgage Trust, securitized some 45,000 reproductive loans valued at a total of $ 6.8 billion through five private label offerings from the start of the year to the end of October, Fitch reviews reports show. And these are really no cost loans.

Fitch reports show that between 76% and 98% of mortgages in securitized loan pools have changed. In addition, between 1% and 12% of loans across the five transactions were 30 days past due from the end-October deadline. And 25% to 55% of loans in the pools over the five transactions – although current at the end of October – have experienced one or more defaults in the past 24 months.

Yet, there is a huge demand for these reproductive loans and the securities issued against them.

“There’s always an appetite for struggling packages in the aftermarket,” said Rick Sharga, executive vice president of marketing for the real estate research firm. RealtyTrac. “People are looking for stocks that they think have a risk / reward ratio that is appropriate for their taste. And there are very few NPLs available, so reproductive packages have, more or less, replaced NPLs. “

A reproductive loan is a mortgage for which a borrower’s payment has been missed but is subsequently resumed for a while. However, government-imposed abstentions during the pandemic allowed homeowners to default on payments to avoid the emergency of the normal foreclosure pipeline, which typically shifts into high gear once non-performing status is reached. after 90 days of non-payment.

According to Tom Piercy, CEO of Incenter Mortgage Consultants. Piercy explained that many homeowners who have fallen behind on their mortgage payments because of the pandemic are now recovering, either because of government help or because they are now re-employed.

“As the economy begins to improve and moratoriums are lifted on foreclosures,” he added, “the forecast is that the recovering market will maintain this high volume for many months to come. “.

The Mortgage Bankers Association reports as the total number of forborne mortgages fell six basis points as of Oct. 24, the latest figures available – to 2.15% of mortgage agent portfolio volume, from 2.21% the week before. MBA estimates that 1.1 million homeowners are currently in forbearance plans – the existing pipeline for future reproductive loans.

“Abstention outflows slowed in late October at the slowest pace since late August,” said Mike Fratantoni, senior vice president and chief economist of MBA. “With so many borrowers reaching the end of their 18-month forbearance period, we expect a steady pace of outflows in November.”

Citigroup spokesperson Scott Helfman declined to comment on the lender’s five private label reproductive loan-backed offers or whether additional securitizations were still underway this year. Still, it looks like there are plenty of opportunities ahead in the market in the near term.

“Our fiscal year just ended in September, and it was by far our best year in terms of transaction volumes in terms of number of transactions and nominal balance,” said John Toohig, general manager of whole loan trading at Raymond James. “[Lenders] Right now, an avalanche of cash is coming in through deposits and the demand for loans is relatively low. ”

“… So there is a lot of money for [lenders] who just want to buy loans, ”he added. “It’s a good place if you are a trading desk. “

And the private label market is not the only sector to benefit from the gradual reduction in pandemic abstention plans. Fannie mae since the start of the year through October has marketed some 100,000 reproductive loans through five deals with a total outstanding principal balance of $ 14.5 billion, according to a analysis of government sponsored business records.

Freddie mac pursued a securitization route for its reproductive loan pools instead of selling them as whole loans. From the start of the year through October, Freddie has packed five deals backed by reproductive loan pools that have a combined value of around $ 4.3 billion.

“Normally, if you’ve been 12 months past due on a loan, you’re no longer past due – you’ve already been foreclosed,” Sharga said. “But in today’s marketplace, if you’re forborne and haven’t paid for 12 months, you are considered a delinquent at best.

“But if you make a deal with your repairman, the next day your current. And so, as people step out of forbearance roles, those delinquency numbers keep dropping. “

Even though the reproductive loan market is currently strong and experts expect it to remain sparkling over the next year or so, there are potential headwinds that could impact the value of mortgage collateral. long term, according to Fitch Ratings. It includes the following forecast on house price sustainability in its pre-sale scoring report for Citigroup’s most recent reproductive loan securitization, which was released in late October.

“Fitch sees the values ​​of house prices from this [Citigroup loan] at 11.6% above a long-term sustainable level (against 11.7% nationally), ”says the Fitch report. “The underlying fundamentals are not keeping pace with price growth, which is the result of an imbalance between supply and demand driven by low inventories, low mortgage rates and new buyers entering the market. market… These trends have led to significant increases in house prices over the past year, with house prices increasing 18.6% year over year nationally from June 2021. “

Priscilla C. Carnegie