Varde Partners seeks to expand its investment in excess MSRs

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Fund manager Varde Partners wants to grow its partnerships with lenders and servicers interested in selling off their excess mortgage servicing rights.

"We've been spending a lot of time on MSRs and we continue to see potential liquidity needs among originators needing to partner with capital providers, and other large nonbank servicing platforms looking for capital," Matt Kennedy, a managing director at Varde, said in an interview. "We're a good financing partner for MSRs, depending on the structure, and we have chosen to participate via the excess structure. We focus on Fannie Mae and Freddie Mac, but Ginnie Mae is on the radar as well."

The company considers the rights to servicing compensation that exceeds the basis fee, and loans made outside the bounds of the qualified mortgage safe harbor from ability-to-repay liability, to be the home loan sector's most attractive investments today. Varde owns non-QM lender Deephaven Mortgage.

The fund manager, which was known for investing opportunistically in distressed residential product post-crisis, is currently less interested in assets like nonperforming loans. NPLs are priced too high relative to their returns for the company, according to Kennedy. Much of the residential sector is fairly priced and finding the underpriced opportunities within it takes more digging and more time, he said.

Varde also picks its spots when it comes to investments on the commercial side of the market, said Brian Schmidt, partner and head of Varde's mortgage business. The company is interested in some middle-market loans below $75 million in size, he said.

"We continue to see a little more of a fragmented origination landscape there, and players looking for partners," he said in an interview.

Varde also considers loans secured by certain types of retail to be potential investment opportunities.

"We prefer service-based retail centers due to the changing consumer patterns of shoppers," Jim Dunbar, senior managing director, said in an email.

"Service-based retail continues to create in-store customer demand as their product is typically less driven by e-commerce," he said.

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MSR ATR GSEs Qualified Mortgages Fannie Mae Freddie Mac Ginnie Mae