J.P. Morgan bets on digital mortgage exchange MAXEX

Funding to accelerate market adoption of its platform for buying and selling non-agency loans

J.P. Morgan bets on digital mortgage exchange MAXEX

MAXEX, the first digital mortgage exchange to enable buying and selling residential loans through a single clearinghouse, has landed a strategic investment from J.P. Morgan.

A release said that the financing is intended to accelerate broad market adoption of the MAXEX exchange platform for buying and selling non-agency mortgages – a type of home loan that largely died out after the 2008 financial crisis. Non-agency mortgages, also known as non-QM and “private-label” mortgages, are packaged and sold to investors without a guarantee from government-sponsored enterprises Fannie Mae and Freddie Mac.

MAXEX claims that it has exceeded $20 billion in aggregate trade lock volume since launching the platform in 2016. J.P. Morgan has traded approximately $4 billion in 2021, up from $2.2 billion in all of 2020, according to MAXEX chairman and CEO Tom Pearce and J.P. Morgan managing director Marc Simpson. The bank backed MAXEX’s launch and is pouring new money into the platform to help it attract other large banks and institutional investors to boost trading activity.

“We’re excited to make a strategic investment in MAXEX as they bring standardization to an otherwise fragmented sector of the residential mortgage market,” said Simpson, managing director and head of non-agency whole loan and RMBS trading at J.P. Morgan. “We are eager to see continued growth at MAXEX as they build a more liquid marketplace for trading mortgage loans.”

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In addition to the investment, Pearce said they created an equity incentive model designed to encourage co-investments in MAXEX from other buyers on the platform and motivate them to trade through the exchange, creating greater liquidity for sellers.

“This consortium model is consistent with the way other leading fixed income marketplaces have achieved broad market adoption,” he said

Existing investors like AGNC Ventures and Moore Asset Backed Fund also participated in the investment. Terms of the investment were not disclosed.

“MAXEX solves a number of problems that have plagued the mortgage secondary market for decades,” said MAXEX advisory board member Blythe Masters. “The mortgage industry is pouring billions of dollars into digitizing the front end of the mortgage experience for consumers and lenders. In contrast, MAXEX is uniquely focused on the standardization and efficient intermediation needed to provide liquidity to lenders and efficiencies for investors. It is this back end of the market where untapped opportunities for digitization and growth still exist.”