Opinion

One Part of the Jumbo MBS Market Is Huge

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3d render revealing the huge variations in size among dinosaur species. Dinosaurs pictured are (from small to large) the Compsognathus, Ornitholestes, Dilophosaurus,Torosaurus, Giganotosaurus and the Camarasaurus. The tiny compsognathus was the size of a turkey, while the Camarasurus was 50 feet (15 meters) long and weighed 51 tons.

WE'RE HEARING the jumbo mortgage-backed securities market had very few issuers until this year and still has only a handful, but originators are another story.

There are well over 80 originators that have contributed loans to post-downturn jumbo MBS, according to Fitch Ratings.

Certain players are emerging as top contributors.

The top player based on loan balance is First Republic Bank, followed by MetLife, Prime Lending, EverBank, PHH Mortgage Corp., Quicken Loans, JPMorgan Chase Bank, Guaranteed Rate Inc., First Savings Mortgage Corp. and United Shore Financial.

There are more than 70 originators listed after the rankings of these top 10 players. The list includes many unnamed companies that have contributed loans to deals.

Shellpoint Partners LLC recently dismantled a jumbo MBS deal it had in the pipeline, citing a relatively more attractive whole loan bid. This suggests jumbo MBS issuers are now facing a new challenge.

Originators can simply sell their loans through other channels if need be, but without jumbo MBS issuance, they cannot develop the track record investors want them to have in the securitized market.

Leading jumbo MBS originator First Republic has contributed more than 3,000 loans to deals. Its total contribution based on the balance of loans sold into securitizations at the time of issuance is more than $3.2 billion. However, First Republic is a bank and can easily portfolio loans rather than securitize.

First Republic also is more the exception than the rule. Originators at the end of the list contributed as little as one loan to a securitization and clearly have other outlets for their mortgages.

The large number of originators and their lack of reliance on securitization alone are helpful when it comes to mitigating the concentration and counterparty risks investors are wary of.

Many originators are small and have limited track records in the securitized jumbo market. Those are concerns for investors.

Post-downturn investors and analysts have been scrutinizing and rating jumbo MBS originators and their credit profiles. It is likely that in doing so they will find that performance differences by originator are emerging in the securitized market. This certainly has been the case in the agency market.

So far the really big financial services players’ names are scarce when it comes to the top jumbo MBS originators list and those there are in the middle of the list rather than at the top of it. Wells Fargo is No. 40 and BlackRock is No. 30, for example.

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