Whole loan trading is the market where mortgage loans are bought and sold between lenders and investors.
What happens when a loan can’t be sold through a traditional agency channel?
In this episode of The AiCR Exchange, Joe Furlong speaks with Nick Dorn, who leads MIAC’s whole loan trading desk. Nick explains how scratch and dent, non-QM, and non-performing loan sales work, what investors are looking for, and how deals actually get executed behind the scenes.
- What scratch and dent loans are and why lenders need to move them quickly
- How non-QM products like bank statement and DSCR loans differ from agency lending
- Why investor demand for non-QM remains strong despite higher rates
- How MIAC manages the loan sale and diligence process from start to finish
The AiCR Exchange features conversations with leaders across mortgage and financial services on document workflows and technology decision-making.
From the episode: Q&A with Nick Dorn
What does MIAC’s whole loan trading desk handle?
Everything outside of agency trades. That includes seasoned performing loans held by banks and credit unions, jumbo mortgages, non-QM, scratch and dent loans, non-performing loans, early buyouts, and certain unsecured debt like personal and auto loans. Residential mortgage loans make up the majority of volume, but the desk has experience across a wide range of debt types.
What is a scratch and dent loan?
A scratch and dent loan is one that cannot be delivered to an agency like Fannie Mae or Freddie Mac due to a defect. That defect could be an underwriting error, a documentation issue, a timing problem with disclosures, or an early payment default. The lender originated the loan to sell it. When the agency kicks it back, they need liquidity. MIAC helps them find investors who will purchase it.
What do scratch and dent loans typically sell for?
It depends on the defect. A high LTV loan that lost its mortgage insurance will sell at a discount regardless of other characteristics. A loan with a minor underwriting issue that has been performing for six to twelve months may sell at or just below par. Getting into the mid to high nineties is considered strong execution for a scratch and dent pool.
Why is non-QM so active right now?
Non-QM fills a gap that agency lending cannot. Agency loans require full documentation and standardized underwriting. Non-QM uses different income metrics, including bank statements, P&L statements, and DSCR calculations for investor properties. Investor demand is strong. When MIAC brings a non-QM pool to market, they see a large number of bidders and competitive pricing.
How does the loan sale process work?
It starts with a conversation about the seller’s goals. MIAC analyzes the data tape, scrubs it for errors, identifies missing information investors will need, and helps set pricing expectations. From there, MIAC puts together an offering memorandum and runs an auction to get the best execution. Once bids are in, MIAC provides a bid reconciliation so the seller can evaluate counterparties, pricing, and stipulations. A typical sale takes around 45 days from first conversation to close.
Does MIAC represent the buyer or the seller?
MIAC operates as a broker and does not take a principal position in any loan. They can work with either side of a transaction. Once bids are made, MIAC quarterbacks the diligence process, keeps both parties on timeline, and helps negotiate issues before they affect pricing or execution.
How does rate volatility affect whole loan trading?
Rate moves get priced in. Higher rates restrict new origination supply, but investors remain active. That makes the market more competitive and can tighten spreads. On the non-performing side, investor pricing has been strong. MIAC has seen more non-performing loan activity in recent months than in the prior couple of years.
What does the market look like going forward?
Steady and continued flow of non-QM with growing investor interest in both non-QM and non-performing product. The main variable is a macro shift, either inflation coming under control, rates falling, or a weakening job market. Until that happens, demand for both product types remains competitive.
Connect with Nick Dorn on LinkedIn or visit MIACAnalytics.com to discuss whole loan trading.