Redwood Sells $424M of Mortgage Bonds at Wider Spreads

Redwood Trust Inc. sold $424 million of bonds tied to new U.S. home loans without government backing at wider relative yields as issuance soars this year.

The offering completed today by Redwood, a specialist in so-called jumbo mortgages, included $299 million of debt that priced to yield 2.82%, a spread of 1.9 percentage points over benchmark swap rates, according to a person familiar with the deal who asked not to be named because they weren’t authorized to speak about the transaction.

Similar securities from the Mill Valley, Calif.-based firm were sold by underwriters at spreads of 1.75 percentage points last month and as low as 0.97 percentage point in January. Relative yields have been widening as sales expand and amid investor concern that government-backed housing debt offered better value and that mortgages will prepay slower than expected if interest rates rise, or faster if they fall.

Issuance of so-called nonagency securities has been tied to more than $5.5 billion of new loans so far this year, up from about $3.5 billion in all of 2012, according to data compiled by Bloomberg. Sales peaked at about $1.2 trillion in both 2005 and 2006, before the market helped spark the worst financial crisis since the Great Depression.

Jumbo mortgages are those larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas. Limits range from $417,000 to $625,500 for Fannie Mae and Freddie Mac loans with the lowest costs for borrowers using 20% downpayments.