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Redwood Sells $297 Million of Mortgage Bonds as Deals Accelerate

businessweek.comOct 18, 2012

By Jody Shenn

Redwood Trust Inc. (RWT) sold $297 million of bonds tied to new U.S. home loans without government backing as issuance accelerates after a slump that began in 2007.

The offering completed today by Redwood, a specialist in so-called jumbo mortgages, was its fifth this year and eighth since the market restarted in 2010, according to data compiled by Bloomberg. Credit Suisse Group AG created two deals in 2012.

Issuance of so-called non-agency home-loan bonds peaked at $1.2 trillion in both 2005 and 2006 before collapsing as their prices tumbled amid soaring foreclosures and plunging home values. Total sales since the market revived still have packaged only $3.7 billion of loans. Other Wall Street banks have shown an increasing interest in recent months in buying jumbo loans, according to Rob Hirt, chief executive officer of RPM Mortgage, a Walnut Creek, California-based lender.

“It’s really thawing at a decent rate,” Hirt said yesterday in an interview in New York.

The top-ranked bonds sold today by Redwood fetched 102.3 cents on the dollar to yield 1.96 percent at forecasted prepayment speeds, or 1.1 percentage points more than benchmark swap rates, according to a person familiar with the transaction, who asked not to be identified because the terms aren’t set.

Royal Bank of Scotland Plc managed the offering, which packaged $320 million of loans, Bloomberg data show.

 

Revival Limited

The non-agency market’s revival is being limited by taxpayer-supported mortgage programs that account for about 90 percent of lending and by demand from banks to hold loans that haven’t been packaged into securities.

RPM Mortgage will probably sell more than $500 million of loans to Wall Street dealers this year, compared with about $150 million last year, Hirt said. While the firms sometimes resell those loans to regional banks, increasing securitization looks likely, he said.

Jumbo home loans are those larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in some areas. For Fannie Mae (FNMA) and Freddie Mac loans with the lowest costs for borrowers using 20 percent down payments, limits range from $417,000 to $625,500.

Also this week, Lew Ranieri’s Shellpoint Partners LLC filed documents with the U.S. Securities and Exchange Commission that allow the firm to issue home-loan securities in the future. The company said it targets good-credit borrowers with conforming loan balances that fall outside of Fannie Mae and Freddie Mac guidelines.

Springleaf Finance Corp., the subprime lender that’s been raising cash to repay maturing debt by packaging older mortgages into bonds, may sell $787 million of home-loan securities this week, according to a person familiar with the transaction.

A $538.4 million top-rated slice may yield about 1.4 percentage point more than benchmark rates, said the person, who declined to be identified because terms aren’t set.

Deals backed by older or delinquent mortgages have been more common since the market froze. A total of $8.3 billion of nonperforming home loans have been packaged into bonds since 2010, according to a report today by Deutsche Bank AG analysts Ying Shen and Jason Wu.


Back to October 2012 Archive

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