03/11/2011

MetLife Moving to Finance Mortgage Push

MetLife has pegged securitization as the primary source of funding for a planned expansion of its mortgage-origination business.

The New York insurer, whose banking arm eventually hopes to become one of the top-five private-label mortgage lenders in the U.S., already has hired the first several members of a team that would assemble the deals. However, it won't move forward with any bond issues until it's clear how pending regulations might affect the business.

Among those directives are new disclosure and risk-retention guidelines that take effect at yearend under an updated version of the SEC's Regulation AB, along with a Dodd-Frank Act provision that makes it easier for investors to sue rating agencies for fraud. MetLife also is looking for indications of how to shape its activities amid the unwinding of Fannie Mae and Freddie Mac.

No matter how those matters are resolved, however, the insurer doesn't see other funding methods taking the place of securitization. “Private securitization will be essential for MetLife. They recognize it and they will be a big player,” said David Lykken, a managing partner at consulting firm Mortgage Banking Solutions in Austin, Texas.

MetLife has issued asset-backed bonds twice before, via two equipment-lease issues adding up to $361 million in 1996 and 1997. It also floated four collateralized debt obligations totaling $1.5 billion in 2000 and 2001, according to Asset-Backed Alert's ABS Database.

All along, the company has been a heavy buyer of structured-finance instruments. It owns $16 billion of commercial mortgage bonds and $14 billion of asset-backed securities, most rated single-A or higher. It also holds $46 billion of private-label and agency mortgage bonds — and might repackage some of those holdings into so-called re-Remics as a means of raising capital ahead of its new-loan securitizations.

Should it meet its lending-volume goals, MetLife would be positioned to become a major bond issuer. Its lending arm, MetLife Bank, ranked 15th among originators of prime-quality mortgages in the U.S. with a 1% market share in 2010, according to American Banker.

To put that in perspective, MetLife wrote $5 billion of new mortgages during the fourth quarter of 2010. To join the top five, currently Ally Bank, Bank of America, Citigroup, J.P. Morgan and Wells Fargo, it would have needed volume of at least $15 billion.

To aid in its expansion, MetLife has been opening new lending offices and hiring staff for the mortgage-underwriting side of the effort, with a focus on prime-quality accounts. Among its recruits was mortgage-banking president Brian Hale. He formerly led consumer lending at Countrywide, a once-prolific issuer that failed amid the global financial crisis and subsequently was sold to BofA.

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