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Lending

Apollo charts new course for loan strategy in 2014

New focus on loans to third parties planning to resell properties

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Apollo Residential Mortgage is preparing to provide loans to third parties that are purchasing residential properties with plans to resell the properties, and will then probably finance purchases by next buyers, CEO Michael Commaroto said on a conference call today.

“We’re exploring several new target initiatives and we recently entered into a relationship to provide a loan to a third-party to facilitate the purchase of residential properties with a view towards reselling the properties to homeowners and taking back total financing in the form of mortgage loans or bonds, which we anticipate will be sold to us,” Commaroto said. “We’ll provide updates on this initiative as it progresses.”

He said that these loans may be for REO-to-rental deals.

Commaroto said the key metrics in the company’s non-agency portfolio continued to improve in the fourth quarter with voluntary prepays staying about 4% CPR for the second quarter in a row, which they believe reflects higher home price appreciation and improved real-estate market fundamentals.

“Moreover, defaults gradually declined as we believe services had worked in their pipelines of delinquent assets; accordingly service stayed in the low to mid 70s,” Commaroto said. “Our deal in the housing market remains constructive. However, given the significant rally in the non-agency market during 2013, we believe it is important for AMTG to begin originating investments to complement the company’s strategy of investing in seasoned securities as yields on non-agencies have compressed.

Commaroto said he looks forward to a more productive 2014, as 2013 was a challenging year for the fixed-income markets and mortgage-backed-securities market in particular.

“Comps on uncertainties surrounding if and when the Federal Reserve will taper asset purchases coupled with mixed data from the state of the U.S. economy and rising interest rates, which increased volatility and closed record outflows from fixed income mutual funds,” he said. “As a result, Agency RMBS underperformed as an asset class in 2013. Despite the ongoing volatility, AMTG ended the year with solid operating results, a diversified portfolio and the stable book value.”

Beginning in June when the market disruption began, the company took decisive risk-management steps to lower its leverage, rebalance its portfolio with the focus on credit assets, maintaining maturation gap close to zero.

As a result of the company’s actions, AMTG ended the year with the portfolio of equity allocation of 47% non-Agency RMBS and securitized mortgage loans, 44% Agency RMBS and 9% cash and a leverage ratio of 4.1 times as compared to 5.1 times at the end of 2012. Book value per common share ended the year $18.26 was likely a decline for approximately 1% from the end of Q3.

(hat tip to the intrepid Jody Shenn at Bloomberg.)

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