Shellpoint Partners LLC, the lender backed by mortgage-bond pioneer Lewis Ranieri, canceled a planned sale of U.S. home-loan securities without government backing, saying it would instead sell the loans without packaging them into bonds.
“This is not a decision we’re undertaking lightly,” Chief Investment Officer Bob Magee said in a statement. “But at some point we can’t ignore best execution. The current RMBS bid is not competitive with the whole-loan bid, even accounting for the qualitative cost of pausing our RMBS program.”
Banks including Wells Fargo & Co. and JPMorgan Chase & Co. have been offering jumbo loans at rates less than those available on traditional debt, crimping opportunities for creators of residential mortgage-backed securities, or RMBS, as investors demand wider relative yields. In a report last month, JPMorgan analyst John Sim cited competition from “asset-starved banks” in cutting his 2013 issuance forecast to “closer to” $15 billion, from $20 billion.
While nonagency bond issuance has grown this year after halting five years ago amid tumbling home values and soaring defaults, sales have slowed since July. About $12.5 billion in deals tied to new loans have been completed this year, up from $3.5 billion in all of 2012, according to data compiled by Bloomberg.
Sales in 2013 probably won’t surpass $15 billion, though they could exceed $50 billion next year, especially if the government cuts the size of mortgages that federally backed Fannie Mae and Freddie Mac can guarantee, Barclays Plc analysts said in a report this month. Issuance peaked at $1.2 trillion in each of 2005 and 2006.
Jumbo home loans are ones larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas. For Fannie Mae and Freddie Mac loans with the lowest costs for most types of borrowers, limits range from $417,000 to $625,500.
Shellpoint, which had cut the size of its planned deal partly by removing riskier loans including ones to foreign nationals, offered its first mortgage-backed securities in June. The company also restructured that transaction, and then offered higher relative yields to attract investors.