Mortgage originators owned by private equity. From research, engagement and analysis, the following characteristics appear to dominate.
Tendency to originate large volume for relatively larger and more frequent securitization product. This could result in lower quality underlying assets, insufficient staff to assess each underlying asset, and increased risk of non-compliance with regulatory requirements.
Short ownership by private equity before either stock market listing or sale to another owner. Often the ownership by private equity is shorter than the maturity of the securitized product.
Potential for lower development of systems and staff; often resulting in a higher turnover of staff. Risk of poorly trained and insufficient staff, potential for outdated systems, lack of consistent communication from staff to investors in securitized products, and increased risk of non-compliance with regulatory requirements.
All these characteristics have the ability to result in a lower quality/higher risk securitized product. These products may price to give a higher return, however the additional return may not compensate for the higher risk.