03/18/2011

Market Pros Tracking Mystery MBS Issuer

A buzz is developing about a jumbo-mortgage securitization that's slated to hit the market by midyear, but industry players are still trying to identify the issuer.

Sources have narrowed the field to a large mortgage lender, perhaps Bank of America, Citigroup or Wells Fargo. The talk is that the $500 million deal, set for the April-June period, would mark the latest in a series of attempts by such institutions to gauge how strongly investor demand for private-label home loan paper has recovered from the credit crisis.

Should the economics prove favorable, the issuer and some of its peers would likely follow up with routine offerings. Even if the bank takes a loss, it might view the process as a worthwhile exercise in establishing relationships with buysiders ahead of an eventual market rebound.

Current funding-cost estimates suggest that issuers of prime-quality mortgage paper would break even or take slight losses. Exact expenses are a moving target, however, and can't be nailed down for a specific transaction until it's in front of investors. “They're not going to know for sure until they try. And they're tired of waiting on the sidelines,” one dealer said.

Indeed, banks have been keeping tabs on the mortgage-securitization environment ever since the market crashed in 2007, but have largely held back their once-prolific issuing programs due to excessive costs. Redwood Trust has been the only issuer to complete a deal backed by fresh loans in 2011. It also was alone in tapping the market in 2010.

The wait among other issuers has been prolonged by uncertainty over various government actions, including disclosure and risk-retention guidelines that take effect at yearend under an updated version of the SEC's Regulation AB. But those players now appear more willing to set such concerns aside, in part because they recognize a need to line up funding sources for increased private-label lending that is expected to accompany the planned unwinding of Fannie Mae and Freddie Mac.

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