Redwood Trust, the only firm to publicly issue Jumbo MBS in the past two years, posted a net profit of just $9 million in the second quarter, half of what it earned in 1Q11, telling investors there is a lack of quality mortgages to buy at the right price.

Compared to 2Q 2010, earnings at the Mill Valley, Calif.-based REIT fell 69%.

Its conduit bought $152 million of prime jumbo loans during 2Q and originated $29 million of commercial mortgages. It also purchased $33 million of residential securities.

In its Redwood Review the firm noted that it is not satisfied with its results, saying it built is Jumbo origination business "for more volume than is currently available at the right terms."

The REIT's plan is to buy closed Jumbos and package them into securities, but many large commercial and regional banks are not only funding such loans but keeping them in portfolio because the interest spread is so wide right now.

Still, the firm said it continues to sign up mortgage lenders that will sell to Redwood. It expects to issue two more jumbo deals before 2011 ends, but admitted the goal is more "challenging" now.

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