Redwood Trust Inc. sold $295 million of bonds tied to new U.S. home loans without government backing as issuance accelerates after a slump that began in 2007.
The offering completed today by Redwood, a specialist in so-called jumbo mortgages, was its sixth this year, packaging a total of almost $2 billion of loans into securities, according to data compiled by Bloomberg. Credit Suisse Group AG, which bundled $1.2 billion of mortgages into bonds in two earlier 2012 deals, is working on a $334 million transaction, the data show.
Issuance of so-called non-agency, or private-label, home-loan bonds peaked at $1.2 trillion in both 2005 and 2006 before collapsing as their prices tumbled amid soaring foreclosures and plunging real estate values. After three Redwood deals totaling $909 million in 2010 and 2011, activity in the market is rising as bond buyers scour the fixed-income landscape for higher returns while the Federal Reserve holds short-term rates near zero and buys government-backed debt to stimulate growth.
EverBank Financial Corp., a Jacksonville, Florida-based bank that has been expanding its mortgage offices, is “starting to see a return of the private-label, high-quality jumbo securities market,” Chairman and Chief Executive Officer Robert Clements said on an Oct. 25 conference call.
The lender sold about $300 million of jumbo mortgages last quarter and is “really pleased” with an additional sale expected during this period, President Blake Wilson said on the call. Demand among mortgage-bond issuers and other buyers for packages of such fixed-rate loans will help the bank originate more of them while balancing its portfolio with commercial assets, he said.
Barclays Plc managed today’s Redwood offering, according to a person familiar with the deal, who asked not to be identified because they weren’t authorized to speak about the transaction.
The securitization by the Mill Valley, California-based real estate investment trust included a $140.1 million top-rated portion with a 2.5 percent coupon, which sold for 102.2 cents on the dollar, the person said. Another $140.1 million, AAA rated class with a 1.81 percent coupon was priced at 100 cents.
The non-agency market’s revival has been limited by taxpayer-supported mortgage programs that account for about 90 percent of lending and by demand from banks to hold loans that haven’t been packaged into securities.
Jumbo mortgages are those larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in some areas. Limits range from $417,000 to $625,500 for Fannie Mae and Freddie Mac loans with the lowest costs for borrowers using 20 percent down payments.
Two Harbors Investment Corp., a mortgage REIT based in Minnetonka, Minnesota, said this month that it’s moving closer to its first jumbo securitization. It held $15 million of the loans on Sept. 30 and had commitments to buy $320 million more.
The potential returns for an issuer that retains the lowest-ranked slices are improving as yields drop on the AAA classes and rating companies demand a “little bit” less so-called credit enhancement, Chief Investment Officer Bill Roth said Nov. 7 in a telephone interview.
Credit enhancement can include some bonds taking losses before others, cash reserves or payments from the underlying assets that exceed coupons on the securities created.
While “the math on securitization is better than it was” reselling the mortgages in bulk to banks is another potential option for Two Harbors, Roth said.
In October, Lewis Ranieri’s Shellpoint Partners LLC filed documents with the U.S. Securities and Exchange Commission that allow the firm to issue home-loan securities in the future. The company said its products include jumbo mortgages and loans to good-credit borrowers with conforming balances that fall outside of Fannie Mae and Freddie Mac guidelines.