The first three issues of U.S. prime jumbo residential mortgage bonds issued since the financial crisis have been called without any loss, Fitch Ratings reported Monday.
The three Redwood Trust transactions were issued in 2010 and 2011 were called during the fourth quarter of 2015. The loans pooled in these deals had weighted average coupons of roughly 5.0%.
Out of the more than 1,000 loans involved in the three called deals, only one loan became more than 90 days delinquent, Fitch noted. Helping to offset losses, prepayments on loans in the collateral pool rose between 2011 and 2013, when mortgage rates fell below 3.5%.
Post-crisis jumbo RMBS transactions often have clean-up call options allowing the sponsor to redeem them when the outstanding principal balance drops below a threshold, usually between 10% and 20% of the original principal balance. Sponsors do this to reduce administrative costs or to profit from ownership of the collateral.
Currently, one other post-crisis prime jumbo RMBS transaction has less than 20% of its original principal balance outstanding. Three transactions issued in early 2012 also have pools with between 20% and 35% outstanding principal balance.
“Prime jumbo RMBS issued after 2012 generally do not enjoy the same refinance incentive as 2011-2012 deals,” Fitch Ratings director Sean Nelson said in a news release. “As a result, RMBS deals issued post-2012 are not expected to pay down to their clean-up call thresholds for several years.”
Fitch also reported a decline in new prime jumbo RMBS issuance volume during the fourth quarter. There were only six transactions from six issuers, fewer than the three previous quarters. While fiscal year 2015 saw a downward trend in issuance volume, the year ended with 35 transactions and $11.9 billion of issuance, versus just 28 transactions and $8.8 billion of issuance the year prior.