05/11/2012

TD Bank Eyes Role as Mortgage-Bond Issuer

TD Bank is giving serious thought to securitizing its portfolio of U.S. jumbo mortgages.

The Toronto bankís executives discussed the possibility with industry players at the Mortgage Bankers Associationís Secondary Market Conference May 6-9 in New York. TD has been writing an increasing number of jumbo mortgages for U.S. borrowers, so far relying on deposits to fund the credits. But conference attendees were told it could begin issuing mortgage-backed securities next year, depending on the resolution of certain regulatory issues.

The initiative would be headed by Greg Tallmadge, a product manager based in Mount Laurel, N.J. Tallmadge has been driving the push to expand origination of jumbo mortgages in the U.S., and is now weighing the bankís funding options going forward.

Securitization might be seen as a long shot, considering that TDís experience in the U.S. structured-finanace industry has been limited to a few collateralized debt obligations that it issued or underwrote about 10 years ago. That said, the bank has been involved in a number of mortgage-bond issues, credit-card deals and CDOs in Canada. And since purchasing Chrysler Financial from Cerberus Capital, it has been seen as a likely issuer of auto-loan paper in the States.

As for the timing of any mortgage securitizations from TD, much will depend on the final shape of risk-retention rules being written by the SEC. A tentative requirement that issuers retain 5% stakes in their deals has been cited as a key reason why new issuance of private-label mortgage securities has been dormant since the financial crisis. Mortgage-bond issuers are now focused on a related rule proposal that would make them exempt from the 5% requirement so long as they restrict their collateral pools to so-called qualified residential mortgages that meet minimum underwriting standards.

Market players had been hoping the SEC would finalize its definition of qualified residential mortgage by midyear, but thatís not likely to happen now until after the presidential election. Meanwhile, TD also is waiting to gauge the impact of more stringent capital-reserve requirements that the Bank for International Settlements will begin phasing in Jan. 1, 2013. The bottom line: The bank isnít likely to pull the trigger on its first mortgage-bond offering until well into next year.

Tallmadge joined TD in 2010 from mortgage insurer Radian Guaranty. Earlier, he clocked about 12 years at PHH Mortgage.

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