A stock tip that turns out to be right, is worth every penny. So, Jeffrey Traister’s prediction about the reverse mortgage investment sector may be worth considering. Traister, managing director and head of agency and non-agency reverse mortgage trading at Cantor Fitzgerald in New York, says he has “no doubt that…10 years from now, this will be a massive market that will trade like every other market.”
His vantage point puts Traister in a special position to assess where the reverse secondary market is – or isn’t – today and what may happen down the road. “Six months ago, there were many [firms] who never heard of it; now there are seven or eight large broker-dealers who participate in the market.” The smaller money managers, banks, hedge funds, regional money managers at banks, smaller investors – they’re all getting involved,” he notes, adding: “That creates momentum.”
Cantor is doing its part, trading both agency and non-agency pools – although Traister says, “non-agency is more ‘one-off’ and by appointment only.” There is a dedicated desk for trading Ginnie Mae securities and the firm will be in the market with a second deal this month, probably equivalent to its first, last November totaling $162 million, according to Traister, who reports that Cantor wants to do “a deal a month. We buy pools from originators hoping to do a deal,” he explains, “then with enough pools we structure these into a CMO (collateralized mortgage obligation) deal, stripping off an IO (interest-only) portion.”
More generally, some market participants have the mistaken belief that there is a lack of liquidity, “that it’s a weird one-off market,” says Traister, who figures that driving these misunderstandings is human nature. “People don’t want to do something different. That’s a big part of attracting investors. It takes time to learn [the product].”
Is a lack of volume likely to turn off other, new entrants? Traister says not necessarily. “The ones who have been sniffing around market – the current volumes wouldn’t affect their need to buy. As to those who need volume to get involved, it’s too far off from what they need to make a difference right now.” The Cantor executive points out, Australia, Canada, Hong Kong all do or are considering reverse mortgages programs, as they also see the consumer and investor appetite for the product.
Written by Neil Morse