Sourced High-Quality, High-Yielding Loans for a Large Regional Bank Without Hiring Additional Personnel
•Closed 24 loans/month on average with a value of $11.23 million
•Acquired primarily high-credit, scratch-and-dent loans as well as some QM loans
•Built a portfolio for the client with an average FICO score of 750, average LTV of 70%, and an average DTI of 37%
In 2017, a large regional bank needed to grow its residential whole loan portfolio to diversify its balance sheet. Rather than create an in-house team, the bank sought to outsource the assignment to an experienced partner who could provide access to loans at lower costs and higher yield, as well as the operational expertise and infrastructure to support and streamline execution. The bank reached out to SitusAMC, which already priced mortgage servicing rights (MSRs) for portfolios within the bank’s short-term warehouse lending line and facilitated introductions to new originators.
When the client reached out, SitusAMC had recently closed the last of its three opportunity funds that invested in so-called “scratch-and-dent” mortgages. SitusAMC had the platform and capabilities to source higher-quality scratch-and-dent loans based on specific yield thresholds set by the bank. Moreover, the bank had provided a credit line for SitusAMC’s opportunity funds, so it had data on the loans’ performance, which helped it get comfortable with the risk profile of the scratch-and-dent loans. SitusAMC established a turn-key operation, performing all of the sourcing, pricing, preliminary due diligence and bidding on loan pools that met the bank’s criteria. SitusAMC built a streamlined process that enables the bank to find loans that the market undervalues at a lower cost, lower risk and excess yield relative to other opportunities in the market.
SitusAMC closed 295 deals valued at $415 million in 3 years, mostly high-credit scratch-and-dent loans and some QM loans, with average FICO of 750, LTV of 70%, and DTI of 37%. Yields ranged from 80-200 bps above jumbo or ~320 bps over interpolated swaps, bought at discounts to par. SitusAMC provided services including letter of intent, due diligence, recommendation, purchase agreement and funding. For rare delinquent loans, they provided services. SitusAMC is now building origination guidelines for full-doc, interest-only loans for the bank.