Redwood Trust plans to increase its origination of private label RMBS in 2013, the company said in its review for the third quarter of 2012. The originator has set a goal of securitizing $300 million or of non-agency loans each month for the next 12 to 18 months.
This year, Redwood completed over $300 million of securitizations in September., October. and November, and it finished October with a $1.2 billion of deals in the pipeline. The company has also steadily added sellers/correspondents to its portfolio in 2012. It said in its report that it has locked in $1.1 billion of loans in the third quarter of tis year; it locked in $758 million of loans in October alone.
Total issuance of prime RMBS so far this year is at $2.8 billion, with Redwood deals accounting for the bulk, or $1.7 billion; there were also two deals totaling another $1.1 billion brought by Credit Suisse and Chimera, which were predominantly backed by loans acquired from MetLife when it exited the mortgage business.
There are widespread expectations that issuance will pck up next year. Bank of America Merrill Lynch said in an outlook report published in December that it expects non-agency issuance to grow to $30 billion in 2013 as lenders look to diversify risk and funding sources for their non-agency originations.
Rumblings of new issuers have already hit the market. Shellpoint Partners LLC, the lender whose owners include market pioneer Lewis Ranieri’s Ranieri Partners and EverBank Financial Corp., have announced plans to come to market sometime in 2013.
On the bank side there are rumors of JP Morgan and BofAML joining the new issue pipeline. However, Bloomberg reported in a Dec.14 article that the long anticipated BofAML RMBS deal backed by U.S. jumbo home loans was delayed once it went through compliance and legal and was brought to the attention of BofA's CEO, Brian Moynihan. The bank did not return calls seeking comment.
One market source on the origination side is skeptical that BofAML is close to bringing a deal to market. “It would be hard to imagine Moynihan signing off on a private label securitization while mired in legal issues over past securitizations and before the Dodd Frank rules are written,” he said.
In its outlook report, analysts at BofAML said that banks still continue to show a high inclination to retain their non-agency originations in their portfolios or to divest risk through whole-loan trading as opposed to going through securitization. According to figures reported by the Federal Reserve, banks today have $1.5 trillion of excess deposits at the Fed now compared to $1.8 billion in December 2007.
“There is little incentive to securitize except to unload interest rate risk but since the Fed has signaled low rates for time to come there may not be a rush to unload that risk,” said the market source
For non-banks, accessing the collateral to back a securitization would require a company to set up a conduit that could acquire the loans one-by-one from originators. “It means you have to invest in the people and systems to build or acquire a complete origination, processing, underwriting, funding, post-closing audit, secondary/securitization etc.; otherwise you are dependent upon buying loans in a competitive bidding process in which there are very few packages for sale and the price is higher than the proceeds from a securitization,” said the market source on the origination side.
This person said that among non-banks, only PennyMac and Redwood have already set up a conduit, while others are waiting to buy in bulk.