Redwood Trust Inc said in its new quarterly review that it will likely come to market with a $300 million jumbo MBS sometime in the fourth quarter.
However, the publicly traded REIT noted that its ability to buy jumbo mortgages in the secondary market is "constrained by headwinds," in particular what it calls the government's (Fannie Mae and Freddie Mac) "outsized role" in the mortgage market.
In the report Redwood complains that the GSEs are snatching up 'conforming jumbos' (mortgages that are $417,000 to $725,750 in size) when instead these loans should be going to private sector buyers.
"For context, in 2009, there were $192 billion of residential mortgage originations over the $417,000 standard conforming limit, $100 billion (52%) of which went primarily to Fannie Mae and Freddie Mac instead of the private sector," the company says.
In the Spring Redwood came to market with a $238 million jumbo MBS, the first private label deal in 18 months. The REIT does not fund mortgages directly and instead must rely on correspondent loan purchases from mortgage banking firms, including depositories.
Other players in the mortgage market are contemplating entering the jumbo MBS space, but to date, Redwood is the only firm to have pulled off a deal.