Ranieri’s Shellpoint Cancels Plan for Second Mortgage-Bond Deal

Shellpoint Partners LLC, the lender backed by mortgage-bond pioneer Lewis Ranieri, canceled a planned sale of U.S. home-loan securities without government backing, saying it would instead sell the loans without packaging them into bonds.

The company last week reduced the size of the potential deal, originally planned for September, to include $250.8 million of jumbo mortgages, down from $308.6 million, according to Kroll Bond Rating Agency reports. It’s now pulling the transaction, which would have been its second, because it can be paid more selling the whole loans, the New York-based firm said today in a statement on Business Wire.

“This is not a decision we’re undertaking lightly,” Chief Investment Officer Bob Magee said in a statement. “But at some point we can’t ignore best execution. The current RMBS bid is not competitive with the whole-loan bid, even accounting for the qualitative cost of pausing our RMBS program.”

Banks including Wells Fargo & Co. and JPMorgan Chase & Co. have been offering jumbo loans at rates less than those available on traditional debt, crimping opportunities for creators of residential mortgage-backed securities, or RMBS, as investors demand wider relative yields. In a report last month, JPMorgan analyst John Sim cited competition from “asset-starved banks” in cutting his 2013 issuance forecast to “closer to” $15 billion, from $20 billion.

Sales Slow

While non-agency bond issuance has grown this year after halting five years ago amid tumbling home values and soaring defaults, sales have slowed since July. About $12.5 billion in deals tied to new loans have been completed this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.

Sales in 2013 probably won’t surpass $15 billion, though they could exceed $50 billion next year, especially if the government cuts the size of mortgages that federally backed Fannie Mae and Freddie Mac can guarantee, Barclays Plc analysts said in a report this month. Issuance peaked at $1.2 trillion in each of 2005 and 2006.

Jumbo home loans are ones larger than 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.

Shellpoint, which had cut the size of its planned deal partly by removing riskier loans including ones to foreign nationals, offered its first mortgage-backed securities in June. The company also restructured that transaction, and then offered higher relative yields to attract investors.

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