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Explaining Credit Score Models

This article will provide a brief overview of different credit scoring models, the differences between actual and simulated credit scores, and the importance of knowing your actual consumer credit scores. 

FICO v. Vantage

Your FICO score is a score that is meant to evaluate creditworthiness. It is promulgated by Fair Isaac Corporation and was first utilized by lenders in 1989.  Your FICO score is calculated based upon the following five factors: 1) Payment history, 2) Credit utilization ratio, 3) Length of credit history, 4) New credit accounts, and 5) Credit mix. 


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In 2006, to compete with FICO, the three major credit bureaus developed the Vantage scoring model. This model calculates credit scores using some of the same factors as FICO, but also incorporates some additional information. The Vantage factors include: 1) Payment history, 2) Credit age and mix, 3) Credit utilization, 4) Balances, 5) Recent credit applications, and 6) Available credit. Although Vantage has been making a push in recent years, FICO scores remain the industry standard across various financial sectors for evaluating consumer credit worthiness.  

Actual v. Simulated

It is important to note the difference between actual credit scores and simulated credit scores. There are many websites, such as Credit Karma, that purport to provide consumer credit scores for free. However, consumers should be weary of putting too much credence or relying too heavily on those scores.  A simulated score is calculated based upon actual information in a consumer credit report, but it may not necessarily reflect your true credit score, which is promulgated by the FICO or Vantage models. There are many instances in which consumers review their simulated scores prior to applying for loan or other financial product, only to find out later that they do not qualify because their actual score is lower than the simulated score. 


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Importance of Getting Actual FICO Score

According to FICO, 90 percent of “top” US lenders use FICO scores when evaluating the credit worthiness of applicants. As the predominant scoring model in the US, consumer FICO scores will, more often than not, determine whether a consumer will qualify for the loan or financial product for which he or she is applying. It is imperative that consumers keep this at the forefront of their minds when devising a strategy or making a decision about when and whether they should apply for a mortgage or a car loan. 


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Whenever a consumer applies for financing, and the potential lender makes a hard inquiry (pulls the consumer’s credit), that consumer’s credit score is negatively impacted, and will decrease as a result of that inquiry. If a consumer believes that he or she will qualify based upon the simulated score, but is later denied, their credit score will take a hit unnecessarily. Because of the deleterious effect that hard credit inquiries have on a consumer’s credit profile, it is imperative that consumers know their actual credit score prior to applying for loans. There are companies that offer monthly subscriptions which include actual consumer FICO scores that are updated monthly. This type of service is invaluable for those who are serious about achieving and maintain credit health, and eliminating any guesswork when applying for loans.


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New Home Purchase Mortgage Applications Rise In January, But Remain Flat Year-Over-Year

The Mortgage Bankers Association (MBA) Builder Application Survey (BAS) data for January 2019 shows mortgage applications for new home purchases remained unchanged from a year ago. Compared to December 2018, applications increased by 43 percent. This change does not include any adjustment for typical seasonal patterns.


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“After two lackluster months, new home sales surged almost 30 percent in January to the fastest pace since our survey began in 2013,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “ The healthy job market, faster wage growth, moderating price gains and lower mortgage rates,  all helped home sales recover. Additionally, builders seem to be seeing improvement in their labor shortages, as government survey data showed increases in construction hiring and openings in December.”


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MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 713,000 units in January 2019, based on data from the BAS. The new home sales estimate is derived using mortgage application information from the BAS, as well as assumptions regarding market coverage and other factors.


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The seasonally adjusted estimate for January is an increase of 29.2 percent from the December pace of 552,000 units. On an unadjusted basis, MBA estimates that there were 54,000 new home sales in January 2019, an increase of 45.9 percent from 37,000 new home sales in December.


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By product type, conventional loans composed 68.7 percent of loan applications, FHA loans composed 18.6 percent, RHS/USDA loans composed 0.5 percent and VA loans composed 12.2 percent. The average loan size of new homes decreased from $334,944 in December to $334,532 in January.

MBA’s Builder Application Survey tracks application volume from mortgage subsidiaries of home builders across the country. Utilizing this data, as well as data from other sources, MBA is able to provide an early estimate of new home sales volumes at the national, state, and metro level. This data also provides information regarding the types of loans used by new home buyers. Official new home sales estimates are conducted by the Census Bureau on a monthly basis. In that data, new home sales are recorded at contract signing, which is typically coincident with the mortgage application.

MISMO Seeks Input On New Standardized Loan Application Dataset

MISMO, the mortgage industry’s standards organization, is seeking industry participants to collaborate on developing a standardized loan dataset that will correspond with the new Uniform Residential Loan Application (URLA). The dataset is geared for general industry use for business-to-business exchanges that need to reflect the data included in the URLA. The development of a standard data exchange is intended to improve accuracy and consistency for industry participants exchanging application information with their business partners.


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“To avoid inefficiencies that result in lost time and money, the industry needs a standardized data exchange that reflects the information contained in the URLA,” said Rick Hill, Executive Vice President of MISMO and Vice President, Industry Technology at the Mortgage Bankers Association (MBA). “By acting now and leveraging the power of MISMO’s resources and its collaborative environment, we have the power to create the new dataset by next year – the time lenders implement the new loan application form.”


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MISMO’s Standardized Loan Application Dataset Workgroup will review current loan application data formats to identify a new dataset for use on all loan applications and supporting documents based on its 3.4 standards. In addition to creating a dataset for exchanging loan application information, the Workgroup will create a sample file and mapping document, an implementation guide and a library of use cases to help lenders adopt the new information exchange when they are ready.


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Any standards created by the Workgroup will be made available for public comment prior to being finalized. Workgroup participants do not have to be members of MISMO to join, but only MISMO members will be able to vote on the new standards.


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Individuals who would like to participate in this collaborative, industry-wide effort should send an email titled, “Join Standardized Loan Application Dataset Workgroup” to info@mismo.org. More information about the Standardized Loan Application Dataset Workgroup and other MISMO workgroups is available at mismo.org

New Mortgage Market Indices Debuts

Optimal Blue, operator of the mortgage industry’s leading secondary marketing automation platform, announced today the release of its latest market innovation – Optimal Blue Mortgage Market Indices or OBMMI. Created to provide consumers and mortgage professionals with greater visibility into key drivers of mortgage pricing, OBMMI provide an unprecedented level of daily insight into observed mortgage transactions. Based on actual locked rates with consumers across more than 30% of all mortgage transactions nationwide, OBMMI provide the most comprehensive, accurate, timely, and interactive analysis of pricing ever conducted in the mortgage industry.

Scott Happ, CEO of Optimal Blue said, “This is an important milestone in Optimal Blue’s transformation from a pricing engine to a digital mortgage marketplace. We are uniquely positioned to introduce these new benchmarks and trust they will be of value to a broad range of participants looking for transaction-based mortgage price data.”


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In this groundbreaking inaugural release of OBMMI, Optimal Blue provides multiple mortgage rate indices developed around the most popular mortgage loan products and specific borrower attributes. Each of the sixteen mortgage indices are represented with the national average of mortgage rates locked by consumers each day and include the change from the previous day. Indices can be compared through compelling interactive and configurable visualizations. For example, users can easily select pre-defined or custom time periods to isolate specific market movements or illustrate unique trends, such as the well documented jumbo-conventional spread inversion that currently exists.

“For close to two decades, Optimal Blue has led the mortgage industry with pricing automation technology designed to facilitate transactions between consumers and lenders,” explained Bob Brandt, VP of Marketing and Strategic Alliances at Optimal Blue.


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“Complete with the industry’s largest product and pricing library and backed by an unparalleled commitment to accuracy, Optimal Blue’s platform ensures that consumers are presented with the best-fit financing alternatives and that lenders consistently deliver the best price. OBMMI will help both audiences better understand trends and pricing in the mortgage market.”


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Optimal Blue, a financial technology company,operatesthe nation’s largest Digital Mortgage Marketplace, connecting a network of originators and investorsand facilitatinga broad set of secondary market interactions. The company’s technology solutions include producteligibility andpricing, lock desk automation, risk management,loan trading, and data andanalytics. More than $750 billion of transactions are processed each year across the Optimal Blueplatform, including approximately 30% of all consumer mortgage rate locks.


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2018 Ends On A High Note With A 14% Rise In Commercial/Multifamily Borrowing

A strong final three months of the year helped commercial and multifamily mortgage originations increase by three percent in 2018, according to preliminary estimates from the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, released here today at the 2019 Commercial Real Estate Finance/Multifamily Housing Convention & Expo.


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“2018 ended on a strong note for commercial mortgage borrowing and lending, with fourth quarter originations 14 percent higher than a year earlier, despite the broader market volatility,” said Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research. “Investor and lender interest in multifamily and industrial properties continues to drive transaction volumes while questions about retail and office property markets have slowed activity for those property types. The market as a whole ended the year roughly flat compared to 2017, continuing a plateau we’ve seen in mortgage borrowing and lending since 2015.”

FOURTH QUARTER 2018 ORIGINATIONS UP 14 PERCENT COMPARED TO FOURTH QUARTER 2017

An increase in fourth quarter originations for healthcare, multifamily and industrial properties led the overall increase in commercial/multifamily lending volumes in the fourth quarter compared to the same quarter in 2017. The fourth quarter saw a 61 percent year-over-year increase in the dollar volume of loans for healthcare properties, a 32 percent increase for multifamily properties, a 28 percent increase for industrial properties, and a slight increase (one percent) for retail properties. Originations decreased for hotel property loans (4 percent) and office property loans (3 percent).  


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Among investor types, the dollar volume of loans originated for the Government Sponsored Enterprises (GSEs – Fannie Mae and Freddie Mac) increased year-over-year by 32 percent. There was a 22 percent increase for life insurance company loans and a five percent increase in commercial bank portfolio loans. The dollar volume of loans for Commercial Mortgage Backed Securities (CMBS) declined 35 percent.

FOURTH QUARTER 2018 ORIGINATIONS UP 33 PERCENT FROM THIRD QUARTER 2018

Compared to 2018’s third quarter, fourth quarter originations for health care properties jumped 155 percent. There was a 56 percent increase in originations for hotel properties, a 34 percent increase for industrial properties, a 30 percent increase for multifamily properties, a 29 percent increase for office properties, and an 11 percent increase for retail properties compared to the third quarter of 2018.


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Among investor types, between the third and fourth quarter of 2018, the dollar volume of loans for commercial bank portfolios increased 46 percent, loans for the GSEs increased 32 percent, originations for CMBS increased 31 percent, and loans for life insurance companies increased by 30 percent.

PRELIMINARY 2018 ORIGINATIONS THREE PERCENT HIGHER THAN 2017

A preliminary measure of commercial and multifamily mortgage origination volumes shows that 2018 originations were three percent higher than 2017. By property type, originations for multifamily properties increased 22 percent, originations for industrial properties rose 12 percent, and originations climbed 5 percent for hotel properties. Office property originations were down 7 percent, retail properties declined 13 percent and healthcare properties decreased a 16 percent.


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Among investor types, loans for the GSEs increased 16 percent between 2017 and 2018 and originations for life insurance companies increased 10 percent. Loans for commercial bank portfolios decreased 10 percent and loans for CMBS decreased 26 percent.

In late March, MBA will release its Annual Origination Summation report for 2018, with final origination figures for the year.

Tallman Johnson Joins MBA As Associate VP of Legislative Affairs

The Mortgage Bankers Association (MBA) announced today that Tallman Johnson has joined MBA as Associate Vice President of Legislative Affairs. In this role, he will be responsible for advocating on behalf of MBA’s legislative and policy priorities on Capitol Hill, with a primary focus on Republican members of the United States Senate. He began his work at MBA on February 1. 


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Mr. Johnson is joining MBA from Capitol Hill where he has spent the majority of his entire professional career.


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“Tallman has a strong understanding of real estate finance issues, significant experience at the committee staff level, and a sterling reputation on Capitol Hill. Our members will be well served by his knowledge and familiarity of the legislative and public policy process,” said Robert D. Broeksmit, CMB, MBA’s President and CEO.


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“I have known and worked closely with Tallman for years, which is why I am so confident that his skill and proficiency with the issues impacting our industry will make him a strong member of our team,” said Bill Killmer, MBA’s Chief Lobbyist and Senior Vice President of Legislative and Political Affairs.


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Among his various roles, Mr. Johnson has served as a Professional Staff Member for the House Committee on Financial Services. Prior to that, he was one of the primary policy advisors to the Chairman of that panel’s Housing Subcommittee. Additionally, he has worked as a Senior Legislative Officer in the Office of Congressional and Intergovernmental Affairs at the U.S. Department of Housing and Urban Development.

Mr. Johnson holds a Bachelor of Arts in Political Science, with a Concentration in International Affairs, from The University of the South in Sewanee, TN. 

CoreLogic Launches Enhanced Title And Closing Solution

CoreLogic has launched an enhanced title and closing solution for lenders incorporated into the industry standard Collateral Management System (CMS). The solution maximizes workflow efficiency around activity related to procuring title insurance, facilitating fee collaboration and streamlining closing tasks between lenders and all loan associated vendors.


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The Title and Closing Solution within CMS offers a seamless integration into TitlePort, which is a CoreLogic service provider facing platform providing connectivity to settlement agents and title providers to digitally accept orders and correspond with lenders via messaging or document transfer in a secure portal, eliminating email and providing compliance and peace of mind. The CMS and TitlePort workflow integration supports a standardized process, improves vendor relationships and communication while reducing closing turn time


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The cost and time invested in building and maintaining a vendor panel can be a burden for lender institutions to consistently ensure all practices are compliant and secure. The CoreLogic Solution within CMS supports vendor growth management through a digital invitation tool, powered by Vendor Headquarters (VHQ), for any size vendor, whether a lender managed panel or borrower chosen. The solution offers the ability to send requests to collaborate with your organization on TitlePort, manage the status of those requests and automate the boarding process into the CMS platform while maintaining a reportable trace of all activity.


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The Title and Closing Solution’s Fee Collaboration tool allows a lender digital platform to collaborate directly with settlement providers as early in the process as possible to more quickly and accurately provide final fees. The collaborative fee worksheet reduces the back-and-forth lag and inaccuracies by providing one document that both parties work within and review in real-time. The worksheet uses comparison visibility to aid in being able to quickly identify recent changes to speed up approval. Configuration capabilities allow exact fees to be recorded rather than estimates to increase client satisfaction at closing, and downstream work.


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“We couldn’t be more excited about this opportunity for lenders,” said Glen Evans, executive of Valuation Technology Solutions at CoreLogic. “Our Title and Closing Solution delivers lenders a comprehensive view into the title procurement, fee disclosure and closing package workflows, maintains a reliable and reportable audit trail within the system, and provides title and closing vendors with seamless connectivity to their lender clients’ platforms.”

For lenders who are currently part of the Collateral Management System (CMS) family, this solution is integrated into their CMS tool kit. The solution brings an established vendor panel, as CoreLogic has partnered with several national Title and Closing providers, including the big four underwriters.

Abington Bank Will Merge With Pilgrim Bank

Andrew Raczka, CEO of Abington Bank, announced that Abington Bank will merge with Pilgrim Bank, a member of the Hometown Financial Group, MHC. The transaction is expected to close in the second quarter of this year.  Raczka will lead the merged bank as its CEO.

“We are thrilled to join forces with Pilgrim Bank,” said Raczka. “Our combined resources and expanded branch network will enable us to better serve customers in Plymouth and Norfolk counties.  We will have the size and scale needed to be a meaningful player in this market and be able to offer the products and services our customers need with the local commitment they deserve.  This transaction will allow us to truly set ourselves apart from the competition.”


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Abington Bank has significant experience with community bank mergers. Abington Bank merged with Holbrook Co-operative Bank in November of 2016.  Just six months later, in May of 2017, Abington announced a second merger, this time with Avon Co-operative Bank.  Today, Abington Bank is a successful $315 million community bank with three branches serving Abington, Avon and Holbrook. After the completion of the merger with Pilgrim Bank, the combined bank will have $600 million in assets and will operate six full-service branches.

“It is difficult and expensive to operate a small bank today. Our previous transactions allowed us to increase our market share and become more efficient,” said Raczka. “Those mergers created significant value for our customers, our employees and our communities.  Now, we will become even stronger and more relevant by merging with Pilgrim Bank.”  


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Hometown Financial Group recently closed on its acquisition of Pilgrim Bank.  “Pilgrim Bank was our entry point into the eastern Massachusetts market,” said Matthew S. Sosik, President and CEO of Hometown Financial Group, Inc.  “From the start, we knew that finding the right mutual partner would be the key to our success with our acquisition of Pilgrim Bancshares, Inc.  We are very excited about our partnership with Abington Bank.  Andy Raczka and his Board are well-known and respected bankers in this market, they know the region, and they have experience with bank mergers and integrations.  Their customer-first approach, employee-centric culture, and commitment to mutuality mirrors our philosophy here at Hometown Financial Group,” said Sosik.  Following the transaction, Hometown Financial Group will have consolidated assets of $2.7 billion and 30 branches across Massachusetts and northeastern Connecticut.  

At closing, the combined bank will be managed by Raczka and his leadership team and the existing Abington Directors will serve as the board of the combined bank.  The Bank will be headquartered in Abington, Massachusetts and will operate as an independent subsidiary of Hometown Financial Group.  Raczka and Paul Sullivan, Chairman of the Board of Abington Bank, will serve on the board of Hometown Financial Group.  Raczka will also serve as President of Hometown Financial Group.  The three Pilgrim Bank branches will continue to operate under the Pilgrim Bank brand after the merger.  


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“That’s the beauty of this merger,” said Sullivan. “Our bank will grow to $600 million in assets, nearly doubling in size, and will gain access to all of the resources, products and services of Hometown Financial Group.  This will allow Andy and his team to focus on growing in our local markets and providing best-in-class customer service.  Our board is certain this is the most effective way to grow our company and remain true to our primary mission of serving our customers for the long term,” he said. 

Under its holding company structure, Hometown Financial Group is able to share resources such as human resources, marketing, facilities management, asset/liability management, investment management, compliance, and information technology with the banks under its umbrella.  “We realize significant efficiencies from our operating model,” Sosik said.  “Banks in the Hometown Financial Group family operate independently with their own identity, management teams, and boards and avail themselves of back-office resources that are critical to effectively and efficiently compete,” he said.  “We strongly believe that this will be an increasingly attractive business model to other community banks as we move forward.”  


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All six branches of the merged bank will remain open and customer impact is expected to be minimal as the banks share the same core data processor.

Luse Gorman, PC served as legal counsel to Abington Bank and Nutter McClennen & Fish LLP served as legal counsel to Pilgrim Bank and Hometown Financial Group, Inc.

CUSO Chooses Blue Sage To Go Digital

Member First Mortgage, a credit union service organization (CUSO), has chosen Blue Sage as its mortgage origination platform. Member First Mortgage provides a complete range of conventional and government loans and performs loan processing, fulfillment, servicing and other mortgage-related services for more than 200 credit unions nationwide. Here’s why:


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All mortgages originated on behalf of Member First Mortgage’s credit union members will be created through the Blue Sage Digital Lending Platform, a browser-based, highly scalable solution capable of supporting any mortgage channel, including retail, wholesale and correspondent lines of business. Built, managed and delivered through a cloud environment, Blue Sage can be accessed on any device and handles pricing, underwriting and loan decision-making from the point-of-sale stage all the way to the closing and funding of a loan.  


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The decision to use Blue Sage was made following an extensive search and review of competing loan origination platforms, Member First Mortgage CEO Jerry Reed said.  “Unlike most loan origination software, Blue Sage was not built with technology that was developed more than a decade ago and is continually repackaged to look new,” Reed said. “It was written in current software language and includes a rich system of APIs, making it a more fluid system that offers better connectivity than any other product on the market. And because Blue Sage is a cloud-managed system, we can add new features and capabilities for years without constantly building new bridges to third-party software and services. It’s completely superior to anything else on the market.” 


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 From a borrower perspective, Blue Sage will be instrumental in helping credit unions attract and serve younger members, Reed added. The Blue Sage platform comes equipped with borrower-facing loan application tools that enable credit union members to manage their own mortgage experience. After a borrower applies for a loan online, Blue Sage automatically calculates fees and creates electronic disclosures that are then sent to the borrower for e-signing, saving valuable time and effort. All vendor services-such as appraisals, title and flood insurance-can be automatically ordered online through Blue Sage’s workflow as well.  


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“Blue Sage is an incredibly fast, user-friendly platform that delivers the same type of online experience that Millennials get when using social media, including chat and screen sharing features. Yet it is also intuitive enough for borrowers of any age to use quickly and easily,” Reed said. “From a presentation standpoint to the way it works behind the scenes, we believe Blue Sage represents the next evolutionary step in loan origination technology.”

 “Member First Mortgage shares our view that mortgage technology should be simple and always place the borrower first,” said Joe Langner, CEO of Blue Sage. “We’re excited for the opportunity to help hundreds of credit unions create a unique mortgage experience for their members by simplifying the mortgage process, eliminating paperwork and dramatically reducing the time and expense it takes to close loans.”

Verus Mortgage Capital Completes $254 Million Investor Loan MBS

Verus Mortgage Capital (VMC), a full-service correspondent investor offering residential non-QM and investor lending solutions, has finalized its eighth rated RMBS (residential mortgage-backed securities) transaction for $254 million. The transaction was VMC’s fifth securitization in 2018. 


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The transaction was comprised of non-owner-occupied mortgages on 1-4 family properties. The securitization was rated by S&P Global Ratings and Morningstar, and is the second investor-only transaction by Invictus, an investment firm that backs VMC.


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“We are quite pleased with how we closed out 2018 and anticipate this year being even stronger in terms of the increasing interest in and demand for non-QM and investor loans,” said Dane Smith, President of VMC. 


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“Our focus remains on helping lenders grow their businesses with responsible non-QM lending and we are dedicated to purchasing quality loans as efficiently as possible,” Smith added. 


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Founded in 2015, Verus Mortgage Capital (VMC) is a non-QM correspondent investor backed by Invictus Capital Partners, a leading investment firm. VMC purchases loans in all 50 states and the District of Columbia and focuses solely on the non-agency market. It offers correspondent lenders a wide range of home financing products for credit worthy borrower.

The Washington, D.C.-based company, with operations located in Minneapolis, has purchased more than $4 billion in expanded, non-agency loans since its inception. In addition, through its affiliates, VMC has completed eight rated securitizations.