Trouble in Non-QM Land?

Hope you are having the goodest of Good Fridays, or Chag Sameach, groovy spring equinox—whatever you celebrate. My kids are off for Spring Break & I’m also house hunting, so we’re going to do some quickies today. No paywall! 

I’ve got a fun scoop on a mortgage tech OG’s return, thoughts from 2 veteran wholesalers on growing non-QM troubles, details on UWM’s failed pursuit of Two Harbors, what to make of the jobs report, crisis comms tips for Blend & more.

Also, I just quickly wanted to say thanks for the support over the last 8 months — we’ll be closing in on our 100th edition pretty soon, which is wild. I’m offering a 10% discount on annual subscriptions as a thank you! I’m also thinking about making some swag. What kind of swag would you want? Email me your request —> [email protected]. 

OK, enough preamble. Let’s get to it!

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Flávia Furlan Nunes has a good story on why UWM wasn’t able to complete the acquisition of Two Harbors. For UWM, the deal made sense as an all-stock acquisition b/c would have allowed them to use equity to buy Two Harbors at a reasonable price & increase float. That UWM’s stock fell so much after the deal was first struck in December was really tough to overcome.

UWM wanted Two Harbors’ roughly $200B in MSRs, but didn’t see value in the platform/capital markets components. CCM, however, did see value in it & Ron Leonhardt’s cash bid was clearly the preference of the board at Two.

Could UWM have paid cash? UWM says sure, if it wanted to. Analysts noted that UWM doesn’t keep a lot of cash on hand by design & were a bit more skeptical. Even if it were feasible, a cash bidding war wouldn’t have made a lot of sense. UWM is a freakin’ monster w/ originations & can build a fat MSR portfolio completely organically, but would need to retain a lot more cash on its balance sheet.

PartnerOne’s acquisition of LOS player Mortgage Cadence is complete. Internally, Mortgage Cadence staff seem jazzed about the new ownership, which isn’t all that surprising given the lack of investment & sustained interest under prior owner Accenture. 

The Scoop can also reveal that Mortgage Cadence co-founder Mike Detwiler is returning as CEO. Detwiler founded the company in the late 1990s & led it as CEO until its sale to Accenture in ‘13.

PartnerOne’s style is to provide managers independence to run the business. My expectation is they’ll focus heavily on accelerating product development. Mortgage Cadence has historically competed in the mid-sized bank & CU segment, which MeridianLink is dominating right now…

U.S. payrolls rose by 178K in March, far more than the -133K that was expected. This has pushed bond yields up today, though it’s a half-day for traders due to the holiday. The 10-year Treasury is up to 4.34% as of this writing. Should these jobs numbers be believed? We saw big revisions to the January & February numbers.

Re today’s jobs report, Matt Graham of Mortgage News Daily noted that “large swings were expected, to some extent, due to large strikes & the end of those strikes. Weird weather played a role to a lesser extent. Strikes aside, the market has shifted its jobs report focus more toward the unemployment rate over the past year or two due to rapid changes in the number of new payrolls required to sustain a flat unemployment rate. On that note, unemployment was decent, but not stellar.”

I still haven’t heard back from Blend re Nima Ghamsari’s mortgage moonlighting. The whole situation got me thinking, “What would a crisis comms pro do in this situation?” So I asked one.

Mitch Cohen, who just launched an AI-powered crisis communications platform called ClearLine, said that Blend's first obligation is governance, not communications. 

“Before anyone speaks publicly, the board needs to confirm what it knew and when. If a disclosure process exists and was followed, say so with specificity. If it wasn't, the audit committee owns that answer. A CEO statement that precedes board alignment will only make things worse.

Once the governance question is settled, the statement has one job: address the disclosure record directly. Not Athena's size, not its two loans in Colorado, not whether it's charmingly described as "Tesla meets Costco for mortgages." The question investors & reporters are asking is whether the board knew. Answer it on the record with specificity, or that question becomes the permanent frame.

The deeper risk isn't the headline. It's what comes after it. Blend has real momentum: pipeline up 40%, Autopilot gaining traction, a $50 million buyback authorization. None of that is narratively available until the governance story is closed. Silence won't protect that momentum. It'll hold it hostage.

And then there's the problem no board statement touches. Blend's investors were already rattled: material weakness disclosure, a price target cut from $3.50 to $2.25, a 52-week low hit in March. This story adds a dimension they weren't expecting and didn't price in.

But the client problem is likely the more dangerous one. Blend's business runs on the trust of the banks and credit unions its platform serves. Athena's pitch — that it delivers lower rates by eliminating the inefficiencies banks build into loans — is a direct critique of those same institutions.

Every Blend client is now sitting with a reasonable question: how much does their vendor's CEO know about their operational weaknesses, and what exactly is he doing with that knowledge. That one won't go away quietly.”

On Wednesday, we reported that there are growing concerns in the non-QM market. Per dv01, the impairment rate on securitized non-QM mortgages rose sharply during February. Thirty-plus day impairments rose 51 basis points month-over-month in February, marking the largest monthly increase outside of COVID & Sunday month-end effects. The total impairment rate on securitized mortgages was around 7.4%, w/ ‘23 & ‘24 vintages being the most problematic.

I asked a couple veterans in the space to share their candid thoughts re what they’re seeing on the ground. 

One source said there’s a rise in LLPAs & new guidelines coming to non-QM products. “You see price hits big-time when it comes to short-term rental loans,” he said. “You’re starting to see more & more companies pull back where they won’t use 12-month historical data anymore.” 

Investors are beginning to place more restrictions around how to use STR income, w/ some adding an extra layer of appraisal review, he added. (There’s concern that a fair number of portfolios contain properties w/ over-inflated rents or values.)

“Non-QM is still poised to make a great run & increase its purchasing power this year, but I think we’ll see stricter guidelines & more pricing hits,” he said.

A wholesale exec expressed alarm about the state of non-QM.

“Several of the investors out there are seeing exactly the risk that occurred prior to the financial crisis,” he told The Scoop. “Leadership that has been through these cycles & navigated through them are mostly gone. Those that are still around know the signals and cycles.”

He said that “not all products & not all markets can handle it. It’s a wait-and-see game & many are looking at the potential risks of buybacks. Brokers rarely care about what they are selling as they want the largest commissions. It’s all over the map.”  

In his view, “we are over-saturated w/ LOs, kind of like the real estate business is. Fraud is on the rise & always a threat. Brokers want no responsibility for that or EPOs because they never learned what makes up their compensation. That’s not the mortgage business that I have spent my life supporting. If you have to sell a mortgage w/ fast talk & false narratives, it’s crazy.”

Most of the April Fool’s Day content was a bad idea. But I really enjoyed a few of them. Rate’s ad about letting kids get mortgages genuinely made me laugh. Rocket also turned a basketball stadium into an open house, which is brilliant. What did you see that was really good or really bad?

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