Second chance
Real estate investment trust MFA Financial spearheaded a stunning turnaround for the residential mortgage bond market in August when it brought back its first non-qualifying mortgage transaction just five months after shelving the deal when the pandemic threatened the company’s survival and rocked the sector.
The year had got off to a solid start for private-label RMBS amid strong demand for paper and brisk origination that was expected to further fuel issuance. But that momentum was brought to a shuddering halt by the Covid-19 pandemic.
Indeed, that the MFA 2020-NQM1 deal made it over the line at all was something of a feat for an issuer forced to yank the original transaction when mortgage-backed markets seized up completely in March.
Banks had exercised margin calls on repo lines they had extended to MFA, forcing the REIT to sell US$3.4bn of assets in the second quarter to raise liquidity. The company had also embarked on a debt restructuring to reduce reliance on short-term repos. The US$2bn-plus restructuring was led by Apollo Global Management and involved Barclays, Credit Suisse and Athene.
“We had to restructure a tremendous amount of our client’s facilities to be able to get them from here to there, which allowed them the breathing room to get them to the market,” said Mike Dryden, head of structured finance at Credit Suisse, which was lead-left on the MFA’s non-QM debut.
By late summer, after the Federal Reserve flooded the market with liquidity and as forbearance measures, stimulus payments and surging demand for homes strengthened the mortgage market, Credit Suisse and Barclays reckoned it was time to bring back MFA’s non-QM deal amid revived demand for that type of paper.
The US$391m deal, offered across five classes, was well subscribed with the spread on the A-1 Triple A tranche with a 2.11-year WAL coming in at 120bp over swaps, versus 130bp–135bp guidance. Although this was still wider than 80bp seen for comparable tranche in a US$313m non-QM deal from Angelo Gordon before the market disruption, the company said the transaction allowed it to raise US$92.7m in additional liquidity and cut its funding costs on the loans by 165bp.
“We stepped in when no one was there, and we got them all the way to the point where they were able to do a non-QM deal,” said Marty Attea, Barclays’ head of securitised products origination.
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