Four Federal Home Loan Banks have recruited 74 members to participate in their new Mortgage Partnership Finance jumbo loan program.
The program, under which jumbo loans are packaged together and sold to Redwood Trust, a mortgage real estate investment trust, recently launched at the Atlanta, Boston, Chicago and Des Moines banks, with another two FHLBs also approved to offer it to their members.
The four banks "began ramping up their marketing efforts to their members in the third quarter," according to a Redwood Trust letter to shareholders.
Redwood will purchase jumbo loans with balances as high as $1.5 million.
As of Sept. 30, "the MPF Direct program has purchased loans from only Chicago participating financial institutions, but we have active loan locks from members in other districts," a Chicago FHLB spokeswoman said in a written response to questions.
Under MPF Direct, members can sell their jumbo loans to the Chicago FHLB, which in turn sells them to Redwood Trust. The Mill Valley, Calif., mortgage REIT prefers to package jumbos into private-label securities for sale to investors.
But that is not the best execution in the current market, according to Redwood president Brett Nicholas.
As a result, Redwood has shifted to bulk and whole loan sales to maintain its margins on jumbo loans.
"In short, a strong portfolio bid for whole loans from banks currently results in a more favorable loan sale execution for us versus securitization," Nicholas said during a Nov. 5 conference call to investors and equity analysts.
"As a leader in private-label securitization," Nicholas said, Redwood remains committed to issuing PLS under its Sequoia brand "to the extent the economics make sense."