Ellington Financial, a specialty finance firm that focuses on mortgages, believes Americans are reducing their debt and is focusing its investments on consumer borrowings including personal loans and second-lien home loans.
"Post crisis, it is the consumer who bore the brunt of increased regulation," said Chief Investment Officer Mark Tecotzky at a mortgage finance conference in New York on Wednesday.
“They’ve paid down mortgages and borrowed less. On the corporate side, you see more leverage in bank loans, weaker covenants, and tremendous growth in corporate debt, while the consumer is paying down debt and has become a saver. Consumer credit risk is a good risk to take right now," he said.
Ellington has focused on buying loans from mortgage finance companies because they "are used to compliance and they have relationships with homeowners," said Chief Executive Officer Larry Penn.
Consumer loans are a growing part of Ellington’s credit holdings. About 22 percent of its Long Credit book of assets consisted of consumer debt as of March 31, up from 12 percent as of Sept. 30, according to company presentations.
The company is also considering buying personal loans made online, said Penn, adding that recent turbulence in the market for the debt has made there valuations more attractive.
The firm intends to increase leverage on its assets and access securitization markets later this year after building up its portfolio of loans, the executives said.