A sector of the mortgage market that became a boogeyman during the Great Recession is seeing renewed interest from Wall Street.
JPMorgan Chase is the latest company to invest in “private label” mortgages — loans which are bought and sold without the backing of government lenders such as Fannie Mae or Freddie Mac, The Wall Street Journal reported.
The bank invested in Maxex, which connects buyers and sellers of mortgages that can then be sold to financial firms. The company provides an online clearinghouse where lenders can sell loans and investors can buy them.
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Loans funded using Maxex’s platform have averaged about $1 billion per month this year, the Journal reported. JPMorgan, which had collaborated with Maxex previously, has traded around $4 billion on the platform.
Private-label mortgage-backed securities were prominent prior to the financial crisis, but imploded when homeowners could no longer pay them. Investors had little interest in mortgage bonds without government guarantees from Fannie Mae, Freddie Mac and Ginnie Mae, which now make up an overwhelming share of U.S. mortgage originations.
But this maligned part of the mortgage industry is starting to make a comeback, in part due to new government-imposed limits on the number of vacation or second-home mortgages that can be sold to Freddie Mac and Fannie Mae. Issuance of bonds backed by private residential mortgages reached around $84 billion this year, close to 72 percent of 2020’s full-year total, according to the Journal.
Part of the resurgence in private-label mortgages is due to a new cap from the government on how many vacation and second home mortgages can be purchased by Freddie Mac and Fannie Mae.
[WSJ] — Keith Larsen