Secondary market execution for mortgages has become increasingly important to lenders given thinning margins in the business, and technology is evolving in response.

Having multiple outlets for mortgage assets can be crucial for both pricing and liquidity, and recently some vendors have offered new options: one for non-agency loan sales, and another in the agency market for co-issue servicing.

At the same time, with profit per loan historically low, companies also are seeking technology that offers an efficient process as well. Ginnie Mae is turning its attention next to a procedural innovation that could allow for more scalable use of electronic promissory notes.

To learn more about all of these developments, read on.

A new marketplace for non-agency

Maxwell, a fintech that previously added a division to buy closed conventional loans from clients using the company's point-of-sale software, is now making it possible for lenders to sell non-agency loans through a separate correspondent unit too.

The company underwrites, aggregates and sells to investors products like non-qualified mortgages, fixed rate seconds and loans underwritten based on debt service coverage ratios, said President Brian Simons, in an interview. That process minimizes turn times, he noted.

"We pass kind of that better pricing back down to our smaller clients," Simons said. "We do take a little cut there along the way, but our end game here is not to make as many dollars as we can on trading because we have all these other services."

Lenders have to go through a counterparty review to use the platform that takes an average of roughly two weeks, he said.

While interest in non-agency loans has been inconsistent at times, Simons said the platform helps lenders tap into demand from multiple sellers and he expects the outlook for the market to improve as uncertainties around inflation and its effect on interest rates seems to be subsiding.

"We're actually more positive now than probably where we were 30 days ago. I'm not saying inflation is coming down, but it looks like it's beginning to," he said.
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Increasing the options for co-issue servicing sales

Mortgage Capital Trading has opened up its platform to lenders who want to sell their servicing to investors rather than retain because the industry's profitability squeeze makes the practice attractive.

The share of lenders that sell their loans direct to the agency and split off their servicing to sell on a co-issue basis has wavered a bit but generally it has risen since it fell precipitously early in the course of the pandemic, according to data from the MCT's client base.

The share was just 7% in early 2020, and it's up to the point where it's more in a range between 15% and 20%, said Justin Grant, senior director and head of investor services at MCT, in an interview.

Mortgage companies are "taking advantage of getting that cash upfront," Grant said, noting that finding investors in co-issue servicing can be more difficult than finding buyers for loans.

"Lenders who are selling co-issue have got far fewer investor outlets than they do on the aggregator side of the market," he said.

Next up at Ginnie Mae: More scalable use of eNotes

Yet another one of the barriers to broader use of electronic promissory notes may be close to coming down.

Ginnie Mae has confirmed it anticipates commingling electronic and paper eNotes in its mortgage-backed securities program, a development that's been long sought-after by the industry. 

"As our digital collateral program continues to grow, we are evaluating how we can integrate eMortgages into our program as a whole," said Sam Valverde, executive vice president and chief operating officer at Ginnie Mae, in an emailed statement. 

Commingling "digital and paper-based collateral" is "an important part of this integration effort," he said, noting that "with our successful migration to the cloud behind us, we are now in a position to plan for this important priority."

Finding scalable eNote technology has become a challenge, according to Primary Residential Mortgage, which recently noted in a press release that it signed on to use Snapdocs digital closing and eVault technology because it resolved that issue for the company.
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