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Excelerate Capital is accelerating its growth in the non-QM market 

The lender this year plans to add hundreds of new employees, nearly double its loan production and tap into the private-label securities market

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Newport Beach, California-based Excelerate Capital, a long-time non-QM lender with a growing market presence, finalized its acquisition of Castle Mortgage Corp. in early 2021 as part of a larger plan to expand its origination reach beyond California — with the goal of creating a national lending footprint. 

That plan is now in full motion and, if successful, will double the lender’s origination volume this year, compared to 2021 — most of it in the non-QM space. It also will result in Excelerate nearly doubling its workforce and lead to its debut in the private-label securities market, according to Excelerate President and CEO Thomas Yoon.

“In the past, we did 97% of our production in California,” Yoon said. “With the Castle acquisition and tech integration now completed, our intent is to lend nation nationwide in the non-QM market. 

“And one of our strategic plans for our growth is we’re really bolstering up our retail division in 2022.”

Yoon said Excelerate is now in the process of building up a “huge team of distributor retail groups” on top of the Castle brick-and-mortar retail network, adding that Castle, at the time of its acquisition, “was more of a shell” with only a handful of employees. 

“We will be hiring retail guys that carry our flag through the Excelerate branches, but they’re not only in California,” Yoon added. “The bulk of them are in different states, like Florida, Texas, Washington, Arizona and Virginia. 

“We need to have footprint outside of [California]. They’ll be based at brick-and-mortar branches and going out into their communities and building customers for Realtors and affinity partners.”

That effort will result in Excelerate expanding its workforce by some 300 employees, Yoon said, adding that the lender is now “geared up to really make a push in all of the states.”

“We anticipate by June of this year to be right around 700 employees,” he added.

The goal of that push is to expand Excelerate’s overall origination volume from around $3 billion annually now to $6 billion or more in 2022, with the bulk of those originations in the non-QM space. Yoon said Excelerate’s non-QM originations in 2021 were “north of $2.6 billion,” and that non-QM volume is projected to expand to $5 billion for 2022.

“About 85% to 90% of our overall production is non-QM,” Yoon added.

Non-QM mortgages include loans that cannot command a government, or “agency,” stamp through Fannie Mae or Freddie Mac. Non-QM loans typically make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners, gig workers and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies. 

Manish Valecha, head of client solutions at Angel Oak Capital, part of Angel Oak Companies, said the non-QM market “as a percentage of the overall market is about 10% to 12% in a normalized environment” — adding that was the size of the non-QM market in the early 2000s, prior to the global financial crisis. 

“That implies a market size [today] somewhere between $175 billion to maybe $200 billion,” he said. “… We just see the market overall growing, especially as the mortgage industry grapples with a slowdown in agency refinancing volume. We see more folks turning their attention to the non-QM space, and we see volumes growing.”

A tally of private-label transactions in 2021 compiled by Kroll Bond Rating Agency shows that the value of non-prime securitizations in 2021 exceeded $27 billion based on aggregate loan-pool volume. A non-prime mortgage is essentially the same as a non-QM loan.

In addition, at least 25 private-label transactions collateralized by more than 27,000 mortgages valued at $14.3 billion hit the market in January of this year, based on an analysis of the flurry of bond-rating reports published over the month. The offerings were evenly divided among the major private-label buckets, with non-QM accounting for nine deals valued at more than $4 billion.

“If you look at it from an origination standpoint, think about all the loan officers that were able to just refi their current pipeline, with interest rates at 3% [or lower],” Yoon explained. “It was kind of a no brainer, just low-hanging fruit. 

“Well, if you go to any originator and say, ‘Hey, 63% of your refi business is going to die this year,’ and let’s say 70% to 80% of their production was refi, how are they going to make a real living? They have to start learning how to adapt to their environment, and non-QM happens to be one of those [adaptations].”

For Excelerate, another adaptation is to find ways to build liquidity for its expanding non-QM loan pipeline. To that end, Yoon said the lender is now working to develop a private-label transaction conduit, potentially by forming some type of joint venture with a private equity fund — with the goal of pursuing up to two private-label securitization offerings in 2022. 

“I can’t explain the actual mechanism yet … but we are looking at potential joint ventures,” Yoon said. “I’ve been in talks with several really big [private-equity] funds, and we’re trying to figure out a way that we can do it together in one form or another.

“I’m hopeful to do at least two deals this year and probably pursue a securitization of $250 million to $300 million for each.”

Yoon added that for Excelerate, as one of the early adopters of non-QM lending, it’s important to remain at the forefront of the industry “and to educate our industry on how to do non-QM well.”

“There will be some challenges [for the industry] in how to navigate the waters, so I think that’s going to be really important,” he said. “The growth is going to happen, regardless. I think the pain points of entry for a lender to do it well will be a little bit more difficult than for agency [Fannie and Freddie] lending because of the manual [underwriting] nature of the [non-QM] sector.”

Key to the industry’ success on the non-QM front, according to Yoon, is training the next generation of mortgage-industry professionals. 

“One of the ways we’ve approached it is we launched what we call the Excelerate Academy,” Yoon said.  “We’re taking new people in the industry — college grads and people that we think have potential — and we’ve created a whole curriculum in our company that we are using to build the operations force of tomorrow.”

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