Non-QM Market Insights: Interview with Industry Leaders

As the mortgage and investment landscape continues to evolve, industry leaders share their insights on market trends, the Non-QM sector, and the future of residential mortgage securities. In this exclusive interview, we engage with key stakeholders from Atlas Merchant Capital, Imperial Fund Asset Management, and A&D Mortgage to explore their perspectives on current and future market dynamics.

Q: What compelled you to enter into the residential mortgage space, and why have you decided on the alliance with Imperial Fund Asset Management and A&D Mortgage specifically?

Bob Diamond: Residential mortgages are the bedrock of the US economy, and we strongly believe that in the post-GFC world, the mortgage market will demonstrate resilience over the course of future cycles. We are particularly excited about the prime non-agency segment of the mortgage universe as reduced lending appetite from the commercial banks and rigid GSE criteria left a large and growing cohort of credit-worthy borrowers with a dearth of options to finance homes. This opened the doors for private credit to fill the void.

We have an opportunity to establish a serious position in the residential mortgage securities market. A&D and Imperial have found a niche away from the banks and away from the agencies thanks to Max and his team. They couldn't find a better partner in this field.

Unlike many lenders who originate mortgage loans to sell them to others, A&D's approach is to underwrite each loan to retain for its own securitizations, keeping significant economic skin in the game. We liked that philosophy a lot as it brings a strong sense of accountability and alignment of interest with all the stakeholders.

Given my experience as the former CEO of Barclays and having operated and invested in many other financial services companies throughout my career, I know what people mean to the long-term success of the business. When we got to know A&D and Imperial over time, we were very impressed by the caliber of their team across all of the various operating functions required to operate the business. Among the most important to us was the strong risk management culture apparent throughout the organization, which makes sense when you think about it given how much of their own capital they have at risk.

At Atlas Merchant Capital, we look for businesses with a unique strategic position, strong experienced leadership, a solid track record, significant skin in the game, and a long runway for growth. A&D and Imperial Fund tick all these boxes for us.

Q: Given your extensive experience investing in financial services/investment companies over the years, what was a compelling thesis for you to look into the residential mortgages space?

David Schamis: The residential mortgage market offers unique opportunities due to its size, stability, and resilience, even in the face of broader economic fluctuations. The low correlation with other sectors, especially compared to other more volatile financial assets, provides a level of diversification that is highly attractive.

As we all know, the mortgage industry went through significant and fundamental changes after the 2008 crisis. Regulations around every aspect of the mortgage market have become tighter. Importantly, loan underwriting standards today have drastically improved versus those found prior to the financial crisis, making the risk profile of investing in mortgage-related securities materially better.

What differentiates our partner, A&D, from the competition? Max and his team have built an amazing origination and servicing platform over the last two decades, which is incredibly tough to replicate. A relentless focus on efficiency and risk management allowed A&D to navigate the choppy period of recent rate volatility and gain material share in the Non-QM mortgage segment. We were particularly blown away by A&D's significant investment in cutting-edge proprietary technology, which allows them to operate significantly quicker and more effectively than their competitors, while providing best-in-class customer service.

Together with A&D and Imperial Fund Asset Management, we are building a unique asset management and investment platform with proprietary sourcing capabilities, allowing investors to access highly sought after, high-quality and difficult to source income-generating assets.

Q: We've seen mortgage rates fall for a third straight week. What do you expect the rates range to be over the next few years? Do you think Non-QM origination is reactive to the economic cycle, or does the unique borrower profile make its growth more consistent?

Max Slyusarchuk: The trajectory of mortgage rates is influenced by various macroeconomic factors, including monetary policy and economic stability.

While I foresee rates stabilizing within a predictable range over the next few years, the Non-QM sector's growth remains less volatile. The unique borrower profile within this segment — self-employed individuals, entrepreneurs, and others who don't fit traditional lending criteria — provides a consistent demand that is somewhat insulated from broader economic cycles.

Q: In 2024, domestic interest rates and inflation stabilized. What effects will this have on the demand for residential mortgage bonds? When you're projecting growth in that bond market, what other variables are you considering?

Victor Kuznetsov: The stabilization of interest rates and inflation in 2024 has created a favorable environment for residential mortgage bonds. This stability reduces uncertainty for investors, making these bonds more attractive. When projecting growth in the bond market, we also consider variables such as housing market performance, borrower credit trends, and regulatory developments. For instance, a potential reduction in the construction labor force, due to immigration reforms and the possible deportation of undocumented workers (23% of the workforce), could slow construction and raise housing costs, impacting market stability. (NYT; Center for American Progress) These factors collectively shape investor confidence and market demand.

Q: How has investor sentiment towards non-agency residential mortgages evolved over the last 12 months?

Anya Gezunterman: Over the past year, we have seen an increased investor appetite for non-agency residential mortgage space. RMBS are frequently oversubscribed, reflecting robust demand for yield. Investors have been looking for other ways to access this sector including partnering with mortgage originators or buying portfolios of whole loans.

As the market continues to evolve in response to economic shifts and changing investor preferences, the insights shared by industry leaders underscore both the dynamic opportunities in the non-agency mortgage space. With ongoing innovation and strategic partnerships, our outlook remains positive for mortgage originators and investors.

As we look ahead to Q2 2025, several emerging risks in the mortgage market could impact investors, including trade-related factors, labor supply challenges, and potential shifts in mortgage rates.

The residential mortgage market, particularly the Non-QM sector, continues to offer exciting opportunities for growth and investment. Insights from industry leaders reveal a sector that's not only adapting to economic changes but also demonstrating strong resilience. With strategic partnerships, cutting-edge technology, and a focus on high-quality loan origination, companies like Atlas Merchant Capital, A&D Mortgage, and Imperial Fund Asset Management are well-positioned to thrive. While challenges such as trade tensions, inflation, and housing supply issues remain, the unique borrower profiles in the Non-QM space provide a level of stability and long-term potential. As we look to Q2 2025 and beyond, investor interest in residential mortgage-backed securities and Non-Agency loans is likely to stay strong, with the sector poised to manage emerging risks while capitalizing on new opportunities.

Strategic partnerships, such as the alliance between Atlas Merchant Capital, Imperial Fund Asset Management, and A&D Mortgage, are critical to navigating the complexities of the market and capitalizing on emerging opportunities.

Atlas Merchant Capital LLC, founded in 2013 by Bob Diamond and David Schamis, is an alternative asset management company with offices in New York and London. Atlas invests globally in compelling opportunities, particularly within the financial services sector, through a diverse range of funds, including private equity, credit opportunities, and SPAC-focused products. The firm's investment strategy is rooted in a long-term, partnership-based approach, leveraging its operating and technical expertise. Atlas's executive team brings decades of experience from top-tier global financial institutions, including Barclays Capital, Cerberus Capital Management, Citigroup, J.C. Flowers & Co, and Fortress Investment Group. For additional information, please visit atlasmerchantcapital.com

As a premier direct lender, A&D Mortgage offers a full spectrum of Conventional, Government, and Non-QM loan products with 24-hour turnaround times and some of the most competitive rates in the industry. In addition to their Prime Jumbo loan product, A&D Mortgage offers programs for Prime borrowers, Foreign National borrowers. Programs with no income verification are also offered for investment property loans. The company offers free concierge services, bank statement reviews, marketing tools and resources, and more to support the brokers they serve. In 2024, A&D Mortgage received several prestigious industry awards, including being officially verified as the #1 Non-QM Lender and a Top 3 DSCR and Bank Statement Lender by Scotsman Guide. They were also named a Top 10 Wholesale Lender by Forbes, awarded a Stevie for Innovative Mortgage Technologies, and received a Globee for Achievement in Artificial Intelligence.

Imperial Fund Asset Management ("Imperial Fund") is the asset manager for Imperial Funds founded in 2014 and headquartered in Fort Lauderdale, FL. Imperial Fund seeks to achieve attractive risk-adjusted returns by exploiting inefficiencies in the residential real estate lending market. Imperial Fund acquires and manages investment portfolios primarily comprised of mortgage loans, real estate debt securities, loans, and related instruments. Imperial Fund’s team combines a deep understanding of credit, loan level analysis, acquisition and management of mortgage loans, and mortgage origination platforms. Imperial Fund employees bring more than 100 years of combined experience in residential mortgage origination, asset and risk management, finance, capital markets, and structured finance.