Redwood Trust Warns on RMBS Market

A few months ago it was a buyer's market for senior tranches of residential mortgage-backed securities, but no more, according to a recent report by Redwood Trust, Mill Valley, Calif. A publicly traded REIT that invests in and services MBS, Redwood said that in the second quarter prices for senior RMBS rose 10% to 15%. "This trend continued early into the third quarter, as prices have moved significantly and steadily higher," it writes. Redwood, which bought RMBS during the market's "nadir," said the negative investment psychology for this asset class has turned positive "and in some cases, is showing signs of animal spirits." The REIT hinted that it may be a selected seller of its positions, noting that "prices could stay at elevated levels for some time."