Market Insight
Non-QM loans are among the most preferred asset classes in PIMCO’s private credit strategy
December 10, 2024
PIMCO, the nation’s top fixed income institutional investor, identified residential mortgage lending, particularly non-qualified (non-QM) loans, as one of a few investment areas in which it has strong conviction for its private credit strategy. According to PIMCO, residential mortgage market has experienced several compelling trends in recent years. The low loan-to-value (LTV) profile, tight loan underwriting standard, and home price tailwinds all have provided private market investors with strong credit fundamentals and attractive value.
As the US banking landscape has evolved since the GFC, banks are now focused on increasing long-term, stable profitability by reducing balance-sheet lending with high capital charges. This drives institutional investors such as PIMCO to look for attractive opportunities in asset-based financing. Since 2016, Non-QM loan market has experienced strong annual growth, according to the JP Morgan data. By 2022, the market size had soared to about $41 billion, and was near $28 billion in 2024 through September 9. The residential mortgage market is the largest component of PIMCO’s asset-based investment opportunity set.
Senior fellows advocate for reducing GSE footprint in the U.S. mortgage market
April 30, 2025
In a recent Wall Street Journal commentary, Mr. John H. Cochrane and Mr. Amit Seru, two senior fellows at Stanford University’s Hoover Institution, argued for the urgency and necessity of expanding private market’s role in the U.S. mortgage market. According to the two Stanford fellows, Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) currently guarantee more than 60% of new mortgages. Compared to their 45% prior to the 2008 financial crisis, GSEs currently have a greater footprint than ever.
What have impeded a vibrant private market from emerging? First, GSEs have been relaxing their underwriting criteria to compete with private lenders. For example, Fannie Mae and Freddie Mac are now allowed to back mortgages up to $1.1 million, a market normally played by private lenders. Additionally, tighter regulation and scrutiny by the CFPB have moved more business away from the private sector. With the GSEs’ mortgage loan portfolio standing at $7.5 trillion, the government is again on the hook if home prices take a tumble. A large GSE footprint also limits market innovation.