A startup called Axylyum, which sells a default management product for private income-producing mortgages, has named its first public client and hopes to gain more momentum as forbearance associated with the pandemic expires.
Axylyum, the name of which was loosely derived from the Latin word for “helper,” structures its private contracts with lenders and their counterparties like a put option on loans that go into default, said CEO Serge Petroff, who has worked as a foreclosure attorney,
The company recently signed an agreement to provide $500 million in default protection for new mortgage production to Capital Mortgage Services of Texas, which is licensed under the name Siwell Inc. CMS could not be immediately reached for comment.
“It's a portfolio-wide engagement option we offer to lenders. In the event of default in one of the loans within the portfolio, we come in and then we buy down the loan at 100% on the principal,” Petroff said in an interview. Lenders can choose whether or not they want to exercise that option when default occurs. He expects the product to be attractive to lenders in the growing
The Axylyum product, which was created to respond to increased
Some of the various forms of lender risk-sharing that Fannie Mae has experimented with over the years also involved contracts structured somewhat like Axylyum’s, said David Battany, executive vice president of capital markets for Guild Mortgage, who was previously involved in the creation of some of these.
However, Axylyum’s product appears to be positioned a little differently than some of the other mortgage risk-management products as it is only offered for private, income-producing loans, as opposed to GSE loans. It also has an exclusion for fraud and is not marketed as insurance.
A company like Altisource’s CastleLine will cover fraud in some instances, does more business with lenders that make owner-occupied mortgages, and markets its product as insurance, said Senior Director Michael Hallman.
The proliferation of default management options can be positive for the market, Battany said.
“Whenever we have multiple entities that are practically looking at risk and putting a price on risk, making bets on risk, it's a good thing because you want risk to be priced correctly,” said Battany. “The best way to do that is to have multiple entities have a vested stake in looking at the risk and saying, ‘Yes, this is low-risk, high-quality product and we're willing to put our money behind it.’”
Whether default management products actually get used by lenders depends on how comfortable other mortgage business partners are with the default risk mitigants and the vendor involved, said Eric Kaplan, director of the Milken Institute Center for Financial Markets.
“One focus in decisions is going to be on the quality of the provider’s financials,” Kaplan said.
Axylyum declined to comment on its finances but Petroff noted that the company provides multiparty agreements that loop in lenders’ counterparties and has business partnerships with a few warehouse lenders. It is marketing its services to both retail lenders and their correspondent investors.
Default management products tend to be most compelling to lenders if they offer low costs compared to alternatives, and if other counterparties like warehouse lenders or investors offer price breaks or other favorable terms in return for their use, Battany said.
“If someone else assesses and holds the credit risk or the manufacturing risk, that can make the system stronger. So from that perspective, the concept seems exciting, but lenders will want to know if this is going to be attractive to investors, and if they will give you better terms or pricing,” said Battany.
