JPMorgan Chase makes new investment in mortgage trading platform Maxex

JPMorgan Chase on Tuesday announced that it is building on the partnership it started in 2017 with Maxex, a platform used for private-market trades of performing whole loans, with a new strategic investment.

Financial terms of that investment were not disclosed, but it’s in line with its new use of an equity incentive model designed to encourage co-investments by users of the platform and others.

The investment adds to signs of renewed confidence in the private market for jumbo and conforming home mortgages that struggled early the course of the pandemic last year, and has been relatively small since the Great Recession. Recent economic and public policy changes, including a reduction in the purchase of second home and investor mortgages by two government-sponsored enterprises, have since revitalized it.

“The private market is incredibly robust right now,” said Maxex Chairman and CEO Tom Pearce. “The GSEs are making changes and we’re an outlet for those loans.”

For the average lender, the Mortgage Bankers Association found that vacation and investment properties made up roughly 14% of applications for purchase loans and 8% of refis around the time the GSEs’ new limits went into effect earlier this year.

That means lenders will need to find new buyers for around $10 billion to $20 billion in non-owner-occupied mortgages due to Fannie Mae and Freddie Mac’s new 7% caps on purchases of such loans.

Maxex has traded roughly $20 billion in loans since its inception and seen its volume more than triple since 2019, according to the company’s press release.

The loan trading platform decided to adopt a new equity incentive model based on how well its use has gone for securities trading companies like TradeWeb, Intercontinental Exchange and MarketAxess, Pearce said. Maxex’s equity stakes are structured such that no one user of the platform has voting control that exceeds 4.9% of the shares, Pearce said.

The platform has a broad range of users of various sizes. In addition to large players like JPMorgan Chase, small mortgage companies use it because its clearinghouse model offers services like automatic due diligence of loans that ease their operational and risk management burdens associated with loan trades.