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June 02, 2017  

Deutsche Targets Non-Qualified Mortgages

Deutsche Bank is positioning itself as an underwriter of bonds backed by home loans that don’t conform with the Consumer Financial Protection Bureau’s “qualified-mortgage” standards.

Talk was circulating this week that Deutsche, which has had virtually no presence in the U.S. mortgage-bond market since the financial crisis, has been reaching out to originators of non-qualified accounts about funding their operations. Sources said the bank is offering warehouse lines, with an eye toward eventually running the books on bond offerings designed to replenish those facilities.

Ryan Stark, head of mortgage finance at Deutsche, is spearheading the effort. Stark apparently sees non-qualified mortgages as a potentially lucrative source of new business after spending the past few years focusing on securitizations of rental-home cashflows and mortgage-bond deals in Europe.

“All of a sudden Deutsche is chasing non-QM business,” one source said. “This is a huge development to see this type of commitment from a bank with Deutsche’s history in private-label [mortgages].”

Indeed, from 1995 to 2008, Deutsche ran the books on $250 billion of bonds backed by prime-quality home loans, subprime mortgages and home equity credits in the U.S., according to Asset-Backed Alert’s ABS Database.

Deutsche’s initiative comes as the origination of non-qualified loans has begun to ramp up. An early entrant to the market, Impac Mortgage, is now writing about $90 million of loans per month.

As for securitization, the first three rated deals backed by non-qualified loans hit the market last year — all from Caliber Home Loans. So far this year, four transactions totaling $862.3 million have priced, with one each from Angel Oak Capital, Caliber, Invictus Capital and Varde Partners.

Deutsche aims to join a field of underwriters that so far includes just Credit Suisse and Nomura. Credit Suisse has run the books on five of the seven deals that have priced to date.

“Deutsche clearly sees a great opportunity to get in the non-QM game early,” another source said.