Redwood Trust in Mill Valley, Calif., plans to stop buying mortgage loans to resell to Fannie Mae and Freddie Mac as it looks to cut costs.
Redwood will shift its focus away from the aggregation of conforming loans to sell to Fannie and Freddie, and devote more resources to direct conforming-related investments in mortgage-servicing rights and risk-sharing transactions, according to a Wednesday news release. Redwood will maintain seller/servicer approvals with Fannie and Freddie, it said.
Conforming business activities use less than 5% of Redwood's capital and its investment portfolio uses 85% of its capital. Additionally, the conforming purchase and sale operations with Fannie and Freddie had generated a pretax loss of between $10 million and $11 million last year.
Redwood also said on Wednesday that it plans to terminate employees in its residential mortgage loan business, representing about 25% of its total workforce. Redwood will record $2 million in total charges to pay for the terminations, spread out over the fourth quarter and the first quarter of this year.