Loandepot announced a new source of funding collateralized by certain cashflows from mortgage servicing rights that will allow it to redeem other similar financing due this October.
The private offering of term notes secured by MSRs has an aggregate principal balance of $200 million and is somewhat similar to other financing vehicles other large nonbanks have utilized. The rights involved are from securitized loans government corporation Ginnie Mae guarantees.
Loandepot’s new notes don’t mature until May 16, 2030 and can be extended to May 17, 2032, demonstrating another way it’s been resolving a broader concern with near-term maturities that analysts say nonbanks have taken steps to address when it comes to unsecured debt.
Chief Financial Officer David Hayes said in a press release that the transaction “highlights the strength and breadth of Loandepot’s financing strategy and attractive capital raising alternatives.”
How Loandepot’s latest MSR funding is structured
The Loandepot financing is “mainly secured by a participation certificate representing a participation interest in the portfolio excess spread and, in certain circumstances, other assets of the issuer, relating to Ginnie Mae mortgage servicing rights,” according to a filing.
The variable rate notes are based on the secured offered financing rate plus a margin per annum.
The manager and initial purchaser was Nomura Securities International and Alston & Bird served as counsel.
How some analysts have viewed MSR financing
While the notes in question are secured and still bear certain risks that include being subject to potential margin calls in the event of an extreme interest rate move, the redemption of the older notes at least relieves the near-term pressure from a 2025 maturity.
Rating analysts have favored some aspects of unsecured debt and nonbanks returned to the market for it last year for that reason, but large players like Pennymac have said they plan to still utilize MSR financing and other forms of funding too.
The risk in funding secured by servicing rights is mitigated by the many outstanding loans with low rates, Fitch analysts have said. Analysts also typically recognize the value of diversified funding sources in risk management.
Other MSR structures at large nonbanks
In addition to Pennymac and Loandepot, other large mortgage companies that have utilized and renewed MSR funding facilities in recent years include United Wholesale Mortgage and Freedom, a sizable private company.
Also, the publicly traded Rithm — which is considering spinning off its mortgage banking unit — launched a nonrecourse structured-finance vehicle backed by Freddie Mac MSRs this year in an effort to diversify funding. Rithm said this was the largest deal of this type at the time.
