Two Harbors Investment Corp. said at press time last month it was closing on a $100 million mortgage warehouse facility with Barclays Bank and would be acquiring prime jumbo residential mortgages for eventual securitization from select originators.
The warehouse facility could be increased in the future, the company said in a report last month. Two Harbors also said in the report that the originators it would partner with would be ones with whom it has chosen to build “strategic relationships.” Some of these originators have a nationwide presence, the company said.
Diane Wold, previously a senior vice president at GMAC Residential Capital Corp. who led the private label mortgage securitization program there, has been named managing director at Two Harbors in conjunction with the effort.
A spokeswoman said the company could not immediately comment outside the press release.
The move could make Two Harbors the second real estate investment trust to package recently issued loans into potentially publicly issued private-label residential mortgage-backed securities space since the downturn. (Although several companies are said to have been privately making plans along similar lines.) The company said it is targeting a $250 million deal size for its initial securitization with Barclays Capital acting as an underwriter.
While several challenges such as continued uncertainty about the housing market’s recovery and developing government rulemaking are continuing to slow the return of the securitized nonagency residential mortgage market, Credit Suisse managing director Dale Westhoff said in a press briefing last month that Two Harbors Investment Corp.’s and Barclays Bank’s public plans for involvement in the market due bode well for that market’s eventual return.
“The REITs are going to play an interesting role in the new issue market,” he said.
“Don’t expect it to be dramatic,” Westhoff said. “It’s going to be incremental.”
Redwood Trust—the only firm to issue jumbo MBS during the past two years—said during its first-quarter earnings call last month it has been having a hard time finding jumbo loans to purchase in the secondary market, telling shareholders, “The biggest obstacle we face today is volume.” It indicated the strategy currently faces other challenges as well in the interim, but it still believes it could eventually pay off and benefit its investors.
In its regular Redwood Trust letter to stockholders, the mortgage investing REIT noted, “We are only able to source loans from the 5% to 10% of mortgage loans that are outside the government’s reach.”
It also referred to its jumbo conduit as being “operationally inefficient,” adding that the unit is a “drag on earnings.”
But the company, whose forte is investing in MBS, is not giving up on jumbo securitizations. “The good news is that the systems and operations in place can be leveraged, likely leading to higher earnings,” it told shareholders. Redwood purchases already funded jumbo loans from originators in the primary market. It does not fund loans itself, except commercial mortgages.
In all of the first quarter it acquired $101 million of jumbo loans.
In a panel discussion at the Mortgage Bankers Association’s National Secondary Market Conference in New York last month prior to the company’s earnings release, Fred Matera, managing director and head of residential investments at Redwood, said investors are stressing a need for well-underwritten mortgages. Borrower equity in the property is key no matter what form of risk retention become required for securitization under developing government rules, he said.
