New Oak Capital's asset management unit has quietly launched a private fund to buy a particular kind of high-yielding mortgage – the kind NewOak's advisory arm is encouraging lenders to originate.

The fund, named Super Jumbo Mortgage Acceptance Corp., will specialize in buying newly originated, nonqualified residential mortgages with slightly weaker credit than a traditional prime jumbo loan, according to a person with direct knowledge of the matter.

SJMAC, which the person described as a hedge fund, launched with a "significant amount of capital" to purchase non-QM loans, but it is also seeking a leverage provider, possibly a bank or insurance company, according to the person.

Ray Jahaly, a managing partner at the New York firm, is a chief contact person for SJMAC, the person also said. Jahaly did not respond to multiple messages requesting comment. According to Finra records, Jahaly first registered with NewOak in 2012, and has previously worked on capital markets teams at BrookView Capital, Credit Suisse and Lehman Brothers.

"It is our policy not to make any comments about the private funds managed by NewOak Asset Management," NewOak chief executive officer and cofounder Ron D'Vari said when reached by email.

Investment firms have zeroed in on the mortgage industry's regulatory woes and they hope to take advantage of the credit voids that banks created when they withdrew after the crisis. NewOak president and cofounder James Frischling wrote in an op-ed in American Banker last week that the government needs to rethink its dominance of the mortgage market.

Investors, struggling with persistently low rates thanks to the Federal Reserve, are seeking out riskier and higher-yielding securities, like the ones SJMAC wants to buy. Demand has so far outstripped supply.

No firm has successfully securitized a mortgage-backed security made up of entirely non-QM collateral because originations have been slow. Lenders aren't sure if they can make a product that is high-yielding enough so that it attracts investors, but cheap enough so that borrowers will take it. Most of these costs are due to legal risks that could stem from mistakes in underwriting.

A different NewOak subsidiary, which provides advisory and credit services, is encouraging lenders to originate more nonqualified residential mortgages.

Current clients consist of smaller banks and independent mortgage bankers that are serving borrowers with strong credit, but nontraditional income sources, to make loans ranging from $1 million to $3 million, some of which have debt-to-income ratios touching 49%, according to the person.

The credit services unit is also selling a "Mortgage Defense Package," with services intended to "help mortgage originators and investors address increased regulatory and enforceability risks," according to a press release.

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