Redwood Trust Finds Neighbors in Jumbo MBS Space

DEC 7, 2012 5:18pm ET

It would appear that Redwood Trust may no longer be considered the “Maytag repairman” of the jumbo securitization space. It has company.

Credit Suisse is in the market with a new jumbo deal and in time Shellpoint Mortgage Acceptance Corp., which is affiliated with MBS co-inventor Lewis Ranieri, will test the waters.

Rumors abound of new jumbo conduits, and there seems to be a little more fire to the smoke than earlier in the year. Supposedly, JPMorgan Chase is contemplating issuing new jumbo securities and even Bank of America. At least two REITs—one public, one private—are contemplating issuing bonds, sources told National Mortgage News.

But should anyone pop the champagne? It’s hard to say.

Jason Eisendrath, director of loan sale strategies for Mortgage Delivery Specialists, told me that he is definitely seeing more nonbanks becoming sellers of jumbos “due to the number of institutions that are either doing securitizations or ramping up for securitizations.”

He added, “Banks and conduits (Street firms) who fund themselves with credit lines are selling loans to generate more fee income.”

A few months back one of the chief concerns of those looking to buy in the secondary market was the unwillingness on the part of originators to part with jumbos at a fair price.

Eisendrath said prices are now rising “due to the limited supply of product...”

Officials that trade, consultant, or originate jumbos say current prices range from 101.5 to 103.

One jumbo funder, requesting anonymity, said the base price is 102.5 with “actual pricing in the range of 101.5.”

Craig Cole, who formerly headed residential lending at Union Bank, San Francisco, said he’s been hearing about prices in the range of 102 to 103. “These are bids,” he cautions. “Prices might be higher depending on the FICOs.” Cole is now a consultant working in the jumbo space.

But Cole also cautions that the market is being held back by uncertainty regarding regulations. He cites both the qualified residential mortgage rule and pending regulations that dictate how much of a “risk weight” certain loans may carry.

“There’s some consternation,” he said.

Cole also worries that jumbo lending—going forward—might be stifled by the debt loads of what he calls “new” jumbo borrowers.

He said, “There are new doctors and lawyers and engineers out there who are the next generation of jumbo buyers and some of them can’t get loans because of their student debt.”

He added, “I think it’s inhibiting the development of the market.”