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Citigroup branches out into non-QM MBS market

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Citigroup’s residential mortgage banking arm has been active the last two years sponsoring mortgage-backed securities of reperforming home loans.

Now it is branching out into the active RMBS market for non-qualified originations.

According to a presale report, Citigroup Global Markets Realty Corp. is sponsoring a $362 million securitization of recently originated non-QM loans acquired from Impac Mortgage Corp., one of the early adopters of post-crisis non-qualified mortgage originations.

Citigroup Mortgage Loan Trust 2019-IMC1 includes a collateral pool of 932 fixed and ARM first-lien mortgages issued to prime, expanded prime and nonprime borrowers. All of the loans were issued by Irvine, Calif.-based Impac, a subsidiary of Impac Mortgage Holdings (NYSE: IMH).

The loans will back six classes of notes including a $245.8 million Class A-1 tranche with a provisional AAA rating from Morningstar Inc.’s DBRS.

Unlike its well-seasoned collateral from four RPL portfolios issued since 2018, Citigroup is pooling newer loans with an average seasoning of six months.

The loans are serviced by Fay Servicing.

The loans, most of which were originated through broker channels (60.7% of the pool balance), have a total balance of $362.5 million, with an average loan balance of $389,035 on loans with a weighted average coupon of 6.315%.

The pool is nearly evenly divided between fixed-rate (45.4%) and five-year adjustable-rate (48.4%) mortgages, and most (63.1%) were originated in California.

Impac originates both agency-eligible and non-qualified mortgages, but has increased its focus on non-QM alternative loan products for the self-employed, investors and jumbo-loan borrowers. According to DBRS, the $1.3 billion of non-QM loan volume in 2018 was 34% of total originations, compared to the 13% share of non-QM activity of its total loan volume in 2017.

With the exception of investors — whose loans are underwritten to the income of the leasing property — borrowers must meet the Consumer Financial Protection Bureau's ability-to-repay guidelines.

These homeowners typically have significant liquid assets and high annual incomes. The 447 loans issued through Impac’s alternative banks statement program, for example, were to buyers with an average FICO of 718 and annual incomes of $515,526, with liquid reserves averaging $156,421.

About 26.7% of the loans were for investors who qualified based on the debt service coverage ratio of the property they planned to lease out. Approximately 13.4% of the properties, by pool balance, were two- to four-family dwellings.

Citigroup Global Markets Realty has sponsored four rated securitizations since 2018 of well-seasoned performing, reperforming and modified loans it had acquired from various sellers over the three previous years. Most recently, in April, it sponsored a portfolio of 1,330 RPL first-lien mortgages with a total principal balance of $262.8 million.

According to Deutsche Bank research, non-QM loans have made up 19% of the $78.1 billion in non-agency MBS volume this year, second only to RPL collateral (20%). Non-RMBS volume is pacing ahead of 2018 issuance of $77 billion, which ended the year at $116.7 billion, according to Deutsche Bank.

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RMBS prime jumbo RMBS Citigroup