COVID-19 has negatively affected the Scratch and Dent industry over the last 2.5 quarters. Scratch and Dent buyers have scrambled to eliminate risk associated with the pandemic. Buyers were concerned with unemployment numbers, forbearance requests and potential mortgage delinquency. Right House Capital saw buyers seize purchasing activities altogether, tighten parameters, add overlays and lower pricing models as fear of the unknown engulfed the Scratch and Dent market. However, as we enter into the 4th quarter, Scratch and Dent buyers are getting back into the swing of things and approaching similar market conditions that we witnessed prior to COVID-19.
With the buyer adjustments in mind, whole loan trading activity decreased over the last two quarters. Mortgage originators brought fewer loans to market and/or many of them passed on the Scratch and Dent Bid Offering as most bids were below expectations. At the same time, mortgage providers have been extremely busy. Especially, with originations during the pandemic as interest rates continue to stay at all-time low levels. These two factors have resulted in a backlog of scratch and dent loans, investor fall-out loans, Non-QM loans, jumbo loans, re-performing loans, sub-performing loans, non-performing loans and any other unsaleable loans that remain on books. Currently, warehouse lines are initiating the curtailment process on many of these loans.
So the reemergence of the Scratch and Dent market could not come at a better time. We are seeing unsaleable loans stacking up and required curtailments increasing. All mortgage companies should now look at their outstanding pipeline of unsaleable loans and market them on the secondary market.
Right House Capital can assist in your liquidation needs while mitigating any potential loss. For more information or if you have any problem loans in your pipeline, contact Andrew Zale at 502-365-5632.
