Efforts to bring back a private-label RMBS market have not been quick, nor — dare I say —wholly successful at this point. But they are persistent, which is among the reasons why I think they will eventually succeed.
And momentum does appear to be building this year, at least on a relative basis, as a Fitch Ratings report noted last week. Fitch last week also said in a report that a bottom to home prices “looks closer,” which could be promising for private-label RMBS issuers’ economics.
As noted previously in ASR sister publication National Mortgage News, there were at least three existing or potential private-label RMBS issuers that had representatives in attendance and publicly speaking at the recent Mortgage Bankers Association’s (MBA) National Secondary Market Conference. These included leading pioneer Redwood Trust, Credit Suisse (the recent issuer of a new deal) and Shellpoint/New Penn.
Given the potential influence players like these could have as PLS RMBS forerunners, I thought investors might want to take note of certain additional comments they made at the recent MBA conference that could give them insights helpful in sizing up the PL RMBS market as it slowly grows.
Fred Matera, managing director and head of residential investment at Redwood, showed there is a continuing interest in trying to do something about second-lien risk that has been a concern to investors. However, Matera at the conference indicated it would be challenging to create government rule changes that have been explored as a possible means of mitigating this risk.
Then there is the question of arbitration requirements and whether they should always be required in new PL RMBS deals. Interestingly, Vanessa Resnick, a vice president at Credit Suisse who spoke on the same panel with Matera, made comments that suggest in her experience it is not, at least at this point, a must-have.
When asked how investors generally tend to weigh arbitration requirements against leaving the option open to take potential PL RMBS issues to court, Digital Risk president Alex Santos told this publication that arbitration can be preferable if its efficacy outweighs potential expenditures of time and costs on legal claims, which have tended to be considerable, relative to any benefit from them. Redwood has been a proponent of arbitration and included the requirement in its deals.
Also there is the question as to whether to be an aggregator or buyer of loans, and how that affects loan and deal value. Shellpoint managing director Eric Kaplan indicated that there is value in having an affiliated originator like New Penn.
With Ginnie Mae, as part of the government-related market that currently dominates MBS, adding new information about the type of party that originates the loans in its deals, it’s likely that this will be a factor in the private-label RMBS market, too.
As for the government’s stated aims of reducing its participation in MBS and letting the private market back in, and how that might occur, CoreLogic senior vice president David Hurt said at the conference that he wonders whether raising guarantee fees works to that end.
Hurt suggested that what the g-fee hike does is raise other prices relative to it in line with existing market shares.