Arch Bay Capital, which invests in and manages delinquent mortgages, appears to have scuttled — for now — its plans to enter the origination business, according to industry officials who have worked with it.
Arch Bay's president, Shawn Miller, did not return calls about the matter Wednesday.
One vendor that has worked with Arch Bay said the firm recently reassigned and even let go workers who were hired to work on originations.
A year ago Arch Bay, an Irvine, Calif., hedge fund, made news when it bought a $600 million portfolio of troubled subprime loans from Wells Fargo.
Executives who work in the nonperforming loan field say Arch Bay continues to review and bid on pools of such loans.
In February of this year, Arch Bay issued a $57.4 million MBS backed by seasoned performing and delinquent subprime loans.
It garnered a 'AAA' rating on the bond, which then was seen as a sign that the private-label market could come back, but only if issuers are willing to make little money on their deals.
The MBS was rated by DBRS and the end investor is a bank, said one official familiar with the transaction.
Quincy Tang, senior vice president of structured finance/RMBS for DBRS, told National Mortgage News that because of the credit enhancement put on the security by Arch Bay, the investor in the 'AAA' bond will not suffer any losses unless delinquencies on the underlying loans exceed 75%, an astronomical number.
The loans — originally funded a few years back by such subprime firms as Accredited Home Loans, NovaStar Mortgage and others — have a 30-day delinquency rate of 21%. The collateral for the bond are loans with a principal balance of $229 million.
An NPL investor, requesting anonymity, said based on what he knows of the deal, the issuer doesn't stand to make much money, if any, on the transaction.
The Irvine, Calif.-based hedge fund could not be reached for comment.