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March 27, 2020  

Nomura Cools on Mortgage Warehousing

Count Nomura among the investment banks that have become wary of mortgage exposures amid the coronavirus crisis.

The Tokyo bank’s concerns stem largely from its activities as a major warehouse lender in the U.S. Sources said it has urged home-loan buyers and originators either to clear out those facilities by securitizing their contents right away or to post additional collateral.

Sources also said Nomura has at least temporarily stopped offering new credit lines in the sector, a maneuver that could reduce its pipeline of bond-underwriting assignments.

For its part, Nomura said it has no intention of exiting the mortgage-bond underwriting business. It declined to comment on specific details of its warehouse facilities or its clients. “We are comfortable with the partnerships we have forged with our clients, and we will continue to support them through this difficult market,” an individual close to the operation said.

The bank’s nervousness comes amid widespread reports that financial institutions have been yanking funding from mortgage aggregators. REITs AG Mortgage Investment, Invesco Mortgage Capital and MFA Financial, for example, suddenly found themselves in dire circumstances this week upon receiving margin calls they were unable to meet.

Those moves have largely reflected added risks introduced by the coronavirus pandemic and steep declines in the values of the underlying accounts. Loans that don’t meet the Consumer Financial Protection Bureau’s “qualified-mortgage” guidelines were trading at less than 90 cents on the dollar this week, down from 104 cents a month ago, amid a near-halt in new originations.

That said, sources indicated banks including J.P. Morgan and Morgan Stanley had yet to cut off funding despite sharing those concerns. And mortgage-bond issuers were quick to criticize Nomura’s strategy, pointing out that the bank jumped out of the securitization-underwriting business amid the 2007-2008 downturn — and then jumped back in as conditions began improving.

The initial focus was on financing prime-quality jumbo mortgages and arranging securitizations of those accounts. The bank then added non-qualified mortgage deals, along with reverse-mortgage bonds and risk-transfer offerings. It also has led offerings backed by rental-home receivables and reperforming mortgages.

Nomura ran the books on $18.1 billion of such offerings in 2019, according to Asset-Backed Alert’s ABS Database. So far this year, it has racked up $7.5 billion of such assignments. “It’s great that Nomura was willing to finance all types of risky home loans when times were good. But then it’s the first bank to retract that support in a downturn. It’s going to be hard to trust them again,” one issuer said.

Another issuer bemoaned the impact that a reduction in warehouse funding could have on his business, especially given recent illiquidity in the mortgage-bond market. “With the cost of funds suddenly going way up, the biggest problem we can face is not having a reliable banking partner,” he said. “How can we even continue to do business?”