Two Harbors Plans Debut Mortgage Securities Without U.S. Backing

Two Harbors Investment Corp., the mortgage real-estate investment trust run by Pine River Capital Management LP, is planning its first issuance of home-loan securities without government backing.

The transaction will include $400.7 million of top-rated bonds and be tied to a “high-quality mortgage pool,” Fitch Ratings said today in statement. After buying the junior-ranked portion of a Credit Suisse Group AG deal in the first quarter, the REIT accumulated $520 million of prime jumbo mortgages it could securitize itself when market conditions allowed, Chief Investment Officer William Roth said an Aug. 7 conference call.

Even with investors in AAA slices of such deals demanding even higher yields in comparison to benchmark rates, Two Harbors could earn about 6 percent to 7 percent when retaining the subordinate portions, Roth said. The Minnetonka, Minnesota-based company has created a business to buy home loans in anticipation of the U.S. scaling back the roles of Fannie Mae and Freddie Mac, such as by lowering their loan limits, he said.

“We are constructive about the long-term opportunity in this market and hope to play a meaningful role as the government reduces its involvement in the mortgage market over time,” he said on the call with analysts.

Sales of debt known as non-agency mortgage securities froze five years ago amid tumbling home values and soaring defaults, following issuance of $1.2 trillion in each of 2005 and 2006, and then restarted in 2010. Deals tied to new loans exceed $10 billion this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.

Jumbo home loans are larger than those allowed in government supported programs, currently as much as $729,750 for single-family properties in high-cost areas. For Fannie Mae and Freddie Mac loans with the lowest costs for most types of borrowers, limits range from $417,000 to $625,500.

Before it's here, it's on the Bloomberg Terminal.