Redwood Trust Said to Plan Fourth MBS Sale Since Market Seized Up in 2008
Redwood Trust Inc. (RWT) plans to sell securities backed by about $400 million of new U.S. home loans, only the fourth sale of such debt since credit markets seized in 2008, according to two people with knowledge of the transaction.
The deal may be completed as soon as next week, said the people, who declined to be identified because terms aren’t set. Mill Valley, California-based Redwood, which focuses on so- called jumbo loans, issued all three prior non-agency transactions, data compiled by Bloomberg show. Credit Suisse Group AG is managing the offering, one of the people said.
Redwood’s two deals last year and one in 2010, backed by a total of less than $1 billion of mortgages, followed the collapse of the market as prices tumbled, foreclosures soared and home prices plunged, helping spark the worst financial crisis since the 1930s. Issuance peaked at about $1.2 trillion in each of 2005 and 2006, and may total $5 billion this year, according to JPMorgan Chase & Co. analysts.
“We are cautiously optimistic that private securitization will return eventually, but we look for several necessary steps to clear the way,” the analysts led by Matthew Jozoff in New York said in a report discussing their outlook for 2012.
For now, government-supported mortgage programs and demand from banks are limiting the supply of home loans that Wall Street and other issuers can package into bonds, they wrote in the Nov. 23 report. Sales of U.S. commercial-mortgage bonds, which totaled $28 billion last year after that market thawed following a similar freeze after 2008, may reach as much as $45 billion in 2012, according to Credit Suisse analysts.
Protection Against Losses
The loans, whose balances average $932,000, have combined loan-to-value ratios of 65 percent and borrower credit scores average 770, on a scale that ranges from 300 to 850, one of the people said. The so-called credit support, or protection against losses, for the senior class is 8.25 percent and Fitch Ratings and Kroll Bond Ratings are grading the deal, the person said.
Dow Jones Newswires reported the offering earlier today.
Jumbo mortgages are larger than government-supported Fannie Mae and Freddie Mac can finance, now from $417,000 in most places to $625,550 in high-cost areas, after a decrease from as much $729,750 on Oct. 1.
Redwood, a real estate investment trust which only completed one additional deal in 2011 after saying in September that it expected two more, has said that the lower limits may help increase the supply of loans for private securitization.
Loans bought or guaranteed by Fannie Mae, Freddie Mac, the Federal Housing Administration or other U.S. agencies have been representing about 90 percent of new home lending, according to newsletter Inside Mortgage Finance. Non-agency mortgage bonds lack guarantees from Fannie Mae (FNMA), Freddie Mac or U.S. government- owned Ginnie Mae.
Demand for non-agency home-loan securities also has been damaged by regulatory efforts to slow foreclosures, something that policy makers should keep in mind as Federal Reserve officials call for a removal of all barriers to the refinancing of loans held by agency securities, said Tom Sontag, a bond manager in Chicago at Neuberger Berman Group LLC, which oversees about $183 billion.
Such refinancing would damage bond investors, making them even more wary, and then “who’s going to step into the breach and move mortgage finance along if they shut down Fannie and Freddie, which many politicians are screaming they want to do,” he said yesterday in a telephone interview.
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