The market for private-label mortgages has grown sharply in recent years, with the Wall Street Journal telling us that it has reached one of its highest volume levels since the 2008 financial crisis in the second quarter. Orion is well aware of this, and is using the market to help our brokers help their clients.
For some background, “private-label” mortgages, and the securities they go into in order to be sold into the capital markets, don’t meet the lending guidelines of Fannie Mae and Freddie Mac. Orion sees a variety of products from brokers, and these could be jumbo loans that have loan amounts higher than Freddie &Fannie’s limits of $548,250 (up to $822,375 in some high-cost areas). They could be non-QM or our Titan and non-Agency products.
Given that Fannie and Freddie only purchase mortgages that meet their standards for loan size, debt-to-income ratios, assets in reserve, credit scores, and more, there is plenty of room “outside their box” for other products. Private-label mortgages are not eligible for agency guarantees, including an implicit government guarantee since both are in conservatorship, but still serve very important purposes in the housing market.
What do Orion’s AEs come across? Given some areas in cities, and the appreciation we’ve seen in the last 18 months, there are many home values that exceed conforming loan limits, which creates the need for jumbo mortgage loans. Self-employed borrowers who may not meet the income documentation requirements of conforming mortgages from Freddie and Fannie, so private-label mortgage products meet the needs of these borrowers. Our brokers know that some private-label products that are based on using an investment property's rental income to help qualify.
Orion and other financial institutions can package these non-Agency or jumbo loans into securities (known as mortgage-backed securities, or MBS) and sell them to investors. Or we can sell them into the capital markets via “whole loan” sales. Although the market accounts for less than five percent of the overall origination market, Orion having execution flexibility helps our borrowers to help your clients. Orion has seen more demand for these types of mortgages in2021 from borrowers than in previous years. And we’ve seen more appetite for riskier loans among investors.
Orion’s management is carefully watching the non-conforming market, as well as the mortgage REIT (Real Estate Investment Trust) industry. Because they don't have a government guarantee, private-label mortgage securities tend to have higher yields than their agency-backed counterparts, and major mortgage REITs are reporting higher demand for them. One thing that is constant in the mortgage biz is change, and Orion is always on the look out for tools to help you.