JPMorgan Invests in Mortgage Clearinghouse

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JPMorgan

JPM 1.70%

Chase & Co. is doubling down on efforts to revive mortgage lending, which has largely ceased since the last financial crisis.

The bank is reinvesting in an electronic clearinghouse for private label mortgages, which are packaged and sold to investors without a guarantee from a government-backed firm such as Fannie Mae. The hot housing market has been growing this year.

The investment bank has contributed additional venture funding to Maxex LLC, a growing digital exchange for home mortgages, executives from both companies said. Terms of the deal were not disclosed.

Maxex connects buyers and sellers of home loans by providing standardized documentation so that financial firms can easily acquire them. These firms invest in loans or combine them in mortgage-backed bonds or securitizations that they sell to others.

“If there’s a financial segment that is lagging behind in technology use, it’s the mortgage business — it is highly ineffective,” said James Bennison, CEO of Arch Capital Group, which bought back about $ 120 million in loans on the Maxex platform this year. dollars.

Maxex provides a clearinghouse where mortgage lenders can sell loans and where large banks and asset managers can buy them. The company, founded in 2016, conducts due diligence on loans for sale and uses standardized contracts for buyers and sellers to streamline the trading process, according to CEO Tom Pearce.

Platform-funded loans averaged about $ 1 billion per month this year. JPMorgan has sold nearly $ 4 billion this year, up from $ 2.2 billion for all of 2020, according to Mr Pearce and Mark Simpsons, JPMorgan’s managing director. The bank helped finance the launch of Maxex and is investing new funds to help the platform attract other major banks and institutional investors to boost trading activity, they said.

The private mortgage bond market played a central role in the 2008-2009 financial crisis. It grew a lot in the years leading up to the crash, but investors were burned when millions of homeowners stopped paying off their mortgages.

Today, government-backed giants Fannie Mae, Freddie Mac and Ginnie Mae dominate the US mortgage industry, providing more than three-quarters of mortgages issued in the past year.

Wall Street Banks and investors have tried to restart for a long time private label market with limited success. A tiny fraction of the home lending and lending industry remains. effectively turn off in the early days of last year’s pandemic.

There are many key players involved in the US mortgage market. Here’s what investors need to understand and what risks they take when investing in the industry. Telis Demos from WSJ explains. Photo: Getty Images / Martin Barraud

But since then, the market has reopened and will continue to grow. New government restrictions are one of the factors driving up demand. limiting the size of the mortgage for holiday home and investment property which can be sold to Fannie and Freddie. As a result, industry analysts say more credit is likely to come from the private label market.

According to Bloomberg LP, the issuance of bonds backed by private housing mortgages this year amounted to about $ 84 billion, which is about 72% of the total in 2020, when the pandemic temporarily stopped the market. Sales of bonds backed by so-called large mortgages – loans, often for the purchase of luxury real estate that are too large for Fannie and Freddie to sell – reached roughly $ 22 billion, more than were sold in each of the previous three years, according to the data. JPMorgan.

Maxex has helped connect the underwriters of these bonds to a diverse network of mortgage lenders.

“I am a small lender, and what [Maxex] allows me to access multiple major mortgage buyers, ”said Steve Abreu, chief executive of Newfi Lending in Emeryville, California. Reaching out to these new buyers has allowed NewFi to increase its giant mortgage lending to about 25% of its total business, from 5%, he said.

Email Matt Wirtz at matthieu.wirz@wsj.com and Ben Eisen in ben.eisen@wsj.com

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