I recently noticed that Angel Oak acquired a small balance loan shop. Large PE shops like Lone Star have dedicated teams for small balance loan. I am just wondering what makes small balance loans different from traditional senior mortgages.
Also, what's growth potential and/or exit opportunity for a small balance loan underwrite/originator.
Thank you
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It’s way more profitable than conventional loan, about 8x more profitable than conventional loan in 2015-2017, and now at about 5x after reduction in premium
Thank you. Correct me if I am wrong - because of the balance constraint, borrowers can't secure financing from traditional sources; therefore, they go to alternative lenders and lenders charge higher coupon. From an UW perspective, I would assume the process is largely the same.
No, it’s not alternative financing
It’s called small balance because the loan balance is small, by Fannie/Freddie definition anything under $7M is small balance.
And it doesn’t charge higher coupon, debt shop makes money selling these loans to secondary market (Fannie/Freddie), and GSE would pay 5x more for small balance loans vs conventional loans
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