We’ll have to see this to believe it, but the Wall Street Journal reported on Wednesday that Redwood Trust is hoping to launch a $200m RMBS deal.
Redwood, in its own words, is “a financial institution focused on investing in, financing, and managing non-agency residential and commercial real estate loans and securities.”
A Seeking Alpha post by attorney Greg Weston provided a somewhat snappier description: “[Redwood is a] REIT-structured entity that makes leveraged investments in financial instruments that themselves are highly leveraged”.
Still, if the Journal’s familiar people are correct, this would be quite a benchmark for the private label MBS market, which hasn’t seen a deal of this kind — one which would bundle recently-originated home loans — in about two years. Moreover, according to the Journal, the Redwood deal would be backed by jumbo mortgages.
In any event, the report was a good excuse to cite a recent Fitch report on Prime RMBS Securitization — title: “Back to the Future” — which had been languishing in the AV inbox.
Here’s Fitch on March 8 (emphasis ours):
it does appear certain that, when the securitization of unseasoned loans restarts, the mortgage pools will consist of more traditional loans with better credit, more complete documentation, and lower leverage than the majority of loans securitized between 2005 and 2008.
The rating agency canvassed “major mortgage lenders” for their thoughts on what the potential prime, non-agency loan pool for any future securitizations might look like:
- Credit score: greater than or equal to 720.
- Combined loan to value (CLTV): less than or equal to 80% for owner-occupied properties and less than or equal to 70% for non-owner-occupied properties.
- Income documentation: full.
- Loan balance: greater than the current conforming limit determined at the county level.
- Products: fixed-rate or hybrid ARM, with at least five years until the first rate adjustment.
- Loans with simultaneous second liens: allowable if all other parameters are met.
Not a NINJA-loan in sight, then.
Still, as the Journal also noted, it’s unlikely the potential Redwood deal would open the floodgates on this particular market. Nonetheless, it will be interesting to see what buyers appear, and at what pricing.
Related links:
The return of the commercial mortgage backed security – FT Alphaville
That terrible, terrible 2007 vintage – FT Alphaville
Majority of current RMBS borrowers underwater, Fitch says – FT Alphaville
Investors Urge Reform of Mortgage Securities Market – Housing Wire