The American Securitization Forum (ASF) today welcomed Redwood Trust's launching of the first private label security backed by newly originated RMBS loans since 2008.
While the offering, which comprises extremely high-quality Jumbo prime mortgages, is positive news for the flow of credit, the ASF warned in a press release that the return of private capital for extending loans to consumers and small business via securitization will remain lengthy. The association emphasized, however, that this is "critical to the rebound of the U.S. economy."
According to a report from Bloomberg this morning, Citigroup is trying to sell securities backed by 255 new mortgages, citing people familiar with the transaction. Redwood Trust, a California-based REIT focusing on investing in, financing, and managing non-agency residential and commercial real estate loans and securities, is sponsoring the securitization, Bloomberg sources said. Citigroup is underwriting a potential sale of the $222.4 million RMBS, with JPMorgan Chase serving as co-manager, Bloomberg reported.
The preliminary term sheet for the deal is as follows:
It seems that the new security was created, according to the ASF release, utilizing terms and disclosures developed under the ASF’s Project RESTART, which is an industry initiative designed by investors and issuers to rebuild investor confidence in MBS and ABS, restore capital flows to securitization and increase the availability of affordable credit.
In an earlier Jefferies report quoted by StructuredFinanceNews.com, analysts said that the risk appetites have been increasing in private-label RMBS.
Specifically, there is a rising demand for not only triple-A securities, according to analysts, but also for sub-triple-A securities or in the double-A and single-A sectors.
"With extremely conservative underwriting practices and a focus on asset values, newly originated prime Jumbo loans are the ideal asset class to thaw the frozen private-label RMBS securitization market," Jefferies analysts said. "The first iteration of private-label securitizations is likely to be relatively small and have marginal impact to the securitizer's bottom line."
Analysts think that, as rating agencies, investors, and regulators regain confidence in private-label RMBS, the structure economics will slowly improve through the cycle.
“Today’s transaction signals that the private RMBS market is beginning to re-turn, but it does not signal that RMBS has returned,” commented Tom Deutsch, ASF executive director. “The market is extremely fragile and we need to be very careful, especially as policymakers consider new regulation, that we act thoughtfully to ensure vitally needed private credit starts flowing again to American consumers.”
According to the ASF release, the association has been committed to restarting the securitization markets since the U.S. economy will be "severely constrained" for as long as this source of credit is not available.
Close to 90% of new U.S. home mortgages are now backed by government guarantees via the GSEs. The ASF noted that it is critical to restart the private label mortgage capital market to lessen the housing market’s dependency on the federal government.
“We are committed to working with policymakers to develop sound policies aimed at restoring the securitization markets,” Deutsch said. “Today’s developments are encouraging but we have a long way to go. Policymakers and market par-ticipants need to work together to ensure the markets are revitalized and are not dam-aged by perhaps unintended consequences of new policies.”
“We are pleased Project RESTART is proving useful in helping issuers and in-vestors embrace new structures and disclosures,” Deutsch said. He added that the level of detailed data required under the terms of the project is far reaching and specific.
Investors receive a vast amount of information, according to Deutsch, enabling them to make good initial decisions and then gives them an ongoing stream of information to allow them to continually monitor a transaction’s ongoing performance.