New hires signal new products and added depth to old ones

The three key hires that specialist mortgage and real estate investment manager Pretium announced earlier this month signal its intention to widen its footprint in the US residential mortgage space by adding depth in existing product ranges but also adding new instruments to the roster.

Sarah Kong joins the resi credit trading team as head of mortgage whole loan trading from Goldman Sachs - quite often a dependable farm team for senior Pretium executives. Her mandate is to complement the trading team and expand the product base.

Andrew Miller joins Pretium from Fortress Investment Group to build up a mortgage servicing rights (MSR) business, which constitutes a new line of business for the firm.

Peter Morreale comes to Pretium from Cadwalader, Wickersham and Taft and brings 20 years of experience of securitization law. In addition to its buy-side capabilities, Pretium is an issuer of securitized debt derived from its mortgage assets, RPLs and NPLs, and generally sells between $2bn and $3bn per annum. Morreale’s hire signals its intention to be more active in this sphere.

“If you add Sarah and Andrew to increase and grow your business, then you add Peter to keep up with its growth.  Peter was hired specifically so we can be more active in securitizations,” explains co-head of residential credit Jonathan Babkow, another Goldman alumnus.

The addition of a MSR capability adds an important new dimension to the firm, explains Babkow. Not only does it marry with the existing mortgage origination business MSR tends to prosper in a rising rate environment.

All in all, Pretium feels positive about the US mortgage market and its role in it. Not only are house prices soaring with no end in sight, the firm sees opportunities for customers that are currently underserved by the existing banking structure.

For example, banks tend to eschew potential home loan borrowers without traditional employment status, backed up W2 tax filing, but an increasing proportion of the US working population is self-employed. Banks haven’t yet caught up to this sea change.

Moreover, the current Washington administration has made it a clear priority to expand credit. The central and established role of the GSEs is thus likely to continue unabated.

“Add it all together and we see there being more mortgage products we can invest in. There are a lot of legs to the mortgage market,” says Babkow.

The expansion of credit will also mean an expansion of MSRs. By building out this new business, Pretium hopes to grow its existing origination business. One will help the other.

Babkow also notes the current paucity of good MSRs in the market apart from banks.

The buy/sell firm, now with $26bn in assets, was founded in 2012. In addition to its resi real estate and resi credit business lines, it also has a corporate credit market.

The real estate business was the first piece of the puzzle, to which single family mortgages were added in 2014 and the corporate credit business in 2017.

Simon Boughey