Jumbo securitization is just one of many key financing strategies the hybrid real estate investment trust Two Harbors Investment Corp. is turning to as the government reduces its MBS footprint.
Thomas Siering, Two Harbors Investment Corp.’s president and chief executive officer, said securitization can be quite fruitful as the Federal Reserve looks to reduce its MBS purchases. The company has been working toward it for some time.
“We believe the private sector is necessary to support the U.S. housing market going forward,” said Siering, noting that he sees progress being made on this count in Freddie Mac’s recent sale of credit risk.
The company also has been working toward other efforts its executives said draw on its core competencies in managing prepayment, credit and interest rate risk.
It has been moving toward possibly securitizing credit sensitive assets, and also recently purchased Matrix Financial along with a small servicing portfolio, with the aim of becoming an acquirer of mortgage servicing rights.
Siering said during the company’s second-quarter earnings call that it has made at least two small bulk mortgage servicing rights purchases in July and has been engaged in negotiations for other bulk/flow arrangements.
There could be “significant deal flow” in this area, primarily in terms of mini-bulk/flow arrangements, said Two Harbors’ chief investment officer Bill Roth.
Credit sensitive loan investments also are potentially attractive, he said, because they could be an alternative to legacy residential mortgage-backed securities investments.
When asked when the company might be able to execute on its credit-sensitive loan strategy, executives noted that while there have been deals getting done in this market, they said it is not something they would describe as imminent and noted that it requires substantially more effort than a jumbo securitization.
Two Harbors Investment Corp. chief financial officer Brad Farrell said the company in addition to pursuing these strategies is keeping close tabs on their potential risks.
It does this by keeping an eye out for risks such as potential repo market concerns, as well as keeping tracking credit default swap spreads and geographic exposures that can be indicators of risk.