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Rising rates will drive growth in the non-qualified mortgage securitization market, which could be accelerated if a shortage of conventional loans increases investor appetite for the paper, said Tom Millon of the Capital Markets Cooperative.

Millon is the president, chairman and chief executive of the CMC, which also has a lending subsidiary that he heads as well. Plus Millon is on the advisory board for the Common Securitization Platform.

National Mortgage News asked Millon five questions about his take on the secondary market for 2019. Responses have been edited for length and clarity.
How will private-label securitizations fare in 2019?
We are seeing that the non-qualified mortgage market is actually growing as a percentage of the overall originations market. And it makes sense. Rates are up, the market is down and mortgage company loan officers have the time and the motivation to seek alternative products. Non-QM paper as a proportion of the overall originations will be higher next year.

There will be slow growth of non-QM, as barriers to originating non-QM are not solved overnight. We're probably going to see more non-QM product than we've ever seen before but it's not going to be a runaway market. A wild prediction for next year is that a bunch of investors run into the non-QM space and all of a sudden it is a large proportion of the origination market. There's a low probability of that, but there's an outside chance of a big boom in non-QM.
Would that be because of returns on other investments like the so-called safer paper would be muted?
If the non-QM boom would happen, it would be because of a lack of supply of the other types of mortgage products.

The risk-adjusted returns on non-QM paper are great. The main barriers are just the mechanics of the mortgage market are not yet set up to funnel a lot of non-QM paper into the marketplace. The channels that exist to create the non-QM paper are in their infancy.
Have you looked into the impact of the single security on the secondary market?
No, but there's a chance the single security could be delayed or there could be some problems with the roll out. The Fannie Mae and Freddie Mac front ends remain the same, the plumbing on the back, if you will, that funnels the loans into the securities is what changes. It really doesn't affect the secondary marketing functions.
What about secondary market liquidity improving for emortgages? Can the secondary market do anything to advance e-mortgage adoption?
It's slow, incidentally we are servicers of e-mortgages and we think we are somewhat unique in that regard. Look across the space, none of us have a huge market share because the adoption of e-mortgages is slow. So if an originator wanted to jump into e-mortgages with both feet, the pieces are there. There are upfront expenses in converting a mortgage shop into an e-mortgage shop, which is a bit of a barrier. Also there is a feeling of if it ain't broke don't fix it, things are working fine, so what's the rush to adopt emortgages. There will be a growing share in 2019, but not wildly so.

Somebody asked me the other day would we pay more for the servicing rights coming from an emortgage than a traditional loan. At the moment, no, but it is an interesting thought.
That sounds counterintuitive because e-mortgages are supposed to hold down costs, not increase them, right?
It's about making investments today and saving money over time. That's the philosophy, but it's not always easy to convince somebody to do that.
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