Redwood Trust officials have been hearing plenty of talk about other firms entering the jumbo MBS space—but aren’t holding their breath about seeing new bonds issued anytime soon.
“We hear about a lot of players,” said Redwood Trust chief operating officer Brett Nicholas, “but it takes a lot of prep work to bring these deals to market.
“There’s a lot of planning involved, a lot of back office,” Nicholas told this publication.
“We’d like to see other deals but we haven’t yet,” he said in an interview.
Recently the publicly traded real estate investment trust priced a $290 million jumbo mortgage-backed security bond, its second nonconforming deal within 10 months. (The average loan-to-value ratio on the collateral is 59%. The average Fair Isaac & Co. credit score is 775.)
To date, the Mill Valley, Calif.-based real estate investment trust is the only firm to issue a new nonagency mortgage-backed security since financial markets crashed in the fall of 2008.
Many in the mortgage industry anticipate that come this fall when the Fannie Mae/Freddie Mac loan limit falls from $729,750 to $625,500, more jumbo product will be available to correspondent buyers such as Redwood Trust.
But Nicholas and Redwood Trust executive Mike McMahon said that just because the loan limit will decline that doesn’t mean a rush of deals will be ready to go.
In a recent interview with Origination News, Nicholas noted that the real estate investment trust is reviewing mortgages on a daily basis with an eye toward purchasing them.
He declined to say how many mortgage loans the firm is looking at, and would not disclose the identity of potential sellers. (In response to a question, he said Redwood has no plans to become a direct mortgage lender and will remain as a correspondent buyer.)
Other companies that are working on jumbo conduits and/or mortgage-backed security programs include BlackRock, Goldman Sachs and Pacific Investment Management Co. (PIMCO).
Sources told Origination News that PIMCO has received commitments of up to $1 billion to invest in jumbo mortgages as part of a conduit project, which carries the working name of “Project Bravo.” (PIMCO declined to comment.)
Another potential player in jumbos is Shellpoint Mortgage, a startup company formed by C-BASS founders Bruce Williams and Saul Sanders.
The two are talking to mortgage banker New Penn Financial, Plymouth Meeting, Pa., about buying the company, an $800 million a year originator.
Presumably, Shellpoint Mortgage/New Penn Financial would fund loans and use them in their own mortgage securitizations.
Redwood Trust, Goldman and PIMCO plan to be correspondent mortgage buyers.
New Penn Financial’s chief executive officer Jerry Schiano declined to comment on the matter.
Williams and Sanders could not be reached for comment.
The two Redwood Trust mortgage-backed security deals have been among the most closely scrutinized securities deals in mortgage industry history.
After the destruction caused by nonagency mortgage-backed securities (using subprime collateral) the firm has had to scrub these deals very closely, performing due diligence on all of the loans in the pools.
