Carrington markets second liens to existing servicing customers

Carrington Mortgage Services has announced the formal rollout of a second lien program it's been marketing to borrowers in its servicing portfolio.

Specialized loan officers are currently offering the products, which were quietly added earlier this year in response to the fact that second liens have been gaining traction. The loans may look attractive relative to cash-out refinances because they don't upend borrowers' lower primary mortgage rates.

The rollout is currently limited to existing customers, but an executive at the company said expanding into third-party originations hasn't been ruled out.

"Our initial strategy was to roll with existing clients," Greg Austin, executive vice president, mortgage lending for Carrington Mortgage Services in Anaheim, California, said in an email. "This is not to say we would not consider a second-mortgage TPO strategy in the future."

Multiple nonbanks have emphasized or expanded into seconds as cash-out volumes have dwindled in light of rising rates and are set for a fee increase in some cases in 2023. Certain players are even offering HELOCs, although often not the traditional, variable rate kind.

In this case, Carrington is offering consumers "a variety of closed end, fixed-rate second mortgages with…short term, interest-only options," Austin said.

These include products with rates fixed for 5, 10, 15, 20, 25 or 30 years. Some are also available at a fixed rate for a period of time while also including a 3-year interest only period. The limit on the combined loan-to-value ratio at the time of this writing was 85%. Because second liens do add to a borrowers' leverage and U.S. home valuations, while still historically high, have been softening, the limit put on the CLTV to ensure borrowers retain enough equity to incent them to repay has drawn a little more focus recently.

The company sells second liens to a growing pool of investors and offers the products to borrowers in all states except Massachusetts, North Dakota and Texas. (CMS does not lend in the first two states, and Texas has some idiosyncratic restrictions on home equity loans.)

Carrington was able to stand the program up within 45 days by drawing on its parent company's strength as an asset manager and coordinating the efforts of several divisions, said Andrew Taffet, chief investment officer for The Carrington Companies.

In addition to requiring the mortgage company's marketing, lending and servicing teams to work with the asset management division, the new product required coordination with the company's legal, compliance and regulatory teams.

"It's a solid demonstration of how Carrington can quickly adapt to changing market environments and demonstrate agility in delivering a new product," Taffet said in a press release.

Other nonbanks active in the second-lien market this year have included Achieve, which recently closed on a rare, rated HELOC securitization. Also Rocket rolled out a new home-equity product in August; and New Residential announced a home equity line of credit program in its first quarter earnings call. 

Lenders are increasingly reporting that it's been particularly effective to market second liens to consumers as a way to consolidate other types of higher-rate debt given that inflationary costs have been exceeding wage growth, creating increased demand for borrowing.

Carrington also indicated that this is one of the ways in which it's marketing its home equity products.

"For these homeowners, a second lien loan is a great option for paying off credit card debt, funding a home renovation or taking cash out for other needs," said Kirk Gerling, senior vice president of national retail sales for CMS, in the press release.