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October 11, 2019  

Redwood Courting Fix-and-Flip Originator

Redwood Trust is attempting to buy an originator of fix-and-flip loans, with an eye toward funding the business through securitization.

The Mill Valley, Calif., REIT expects to finalize a deal of perhaps $425 million by yearend. While there’s no official word on an acquisition target, sources are pointing to CoreVest Finance, a portfolio company of Fortress Investment.

Fortress, the private equity subsidiary of Softbank, put the Irvine, Calif., operation on the block in June. Speculation at the time was that it might be worth more than $400 million.

CoreVest is among the largest originators of fix-and-flip loans in the U.S., with a portfolio exceeding $1 billion.

A deal between Redwood and CoreVest could offer broader synergy. In addition to fix-and-flip financing, CoreVest writes investor-property loans and has a portfolio of rental-home receivables — areas where Redwood is eager to expand. CoreVest and Redwood declined to comment.

In the fix-and-flip market, Redwood already has been purchasing whole loans over the past year. By buying an originator, the company would be able to tailor the accounts to its specifications. An initial securitization could hit the market during the second half of 2020.

CoreVest offers fix-and-flip loans of $1 million to $50 million, with each account formatted as a credit line that finances up to 500 single- or multi-family homes for investors that plan to renovate and quickly re-sell the properties. The company also offers bridge financing of $150,000 to $25 million for single projects.

Securitizations of fix-and-flip cashflows have been rare, with perhaps $1 billion of unrated bonds issued over the past year or so. But issuance activity is expected to pick up, as rating agencies including Fitch develop methods for grading the bonds and new investors enter the sector (see article on Page 2).

On the rental-home front, CoreVest already is an active issuer of bonds backed by loans it writes to landlords. Since 2014, it has completed 11 such deals totaling $3.5 billion, according to Asset-Backed Alert’s ABS Database.

All told, CoreVest has written more than $6 billion of loans. The company, formerly known as Colony American Finance, was purchased by Fortress in 2017 from Colony Capital and rebranded. CoreVest’s 100-person staff is led by chief executive Beth O’Brien.

Redwood hasn’t issued bonds backed by fix-and-flip loans or rental-home cashflows, although its name has come up among candidates to carry out rental deals. To that end, sources said the purchase of a lender like CoreVest would dovetail with a year-old push to offer a greater range of rental-home financing — with securitization as a likely funding strategy.

A takeover of a company like CoreVest also would complement Redwood’s core mortgage-finance business by diversifying away from jumbo loans. Origination volume in that sector has been shrinking in the wake of the 2017 Tax Cuts and Jobs Act, which reduced the mortgage interest homeowners can deduct from their taxable incomes.

Redwood is best known in the securitization industry for its mortgage-conduit program, in which it issues bonds backed by prime-quality jumbo loans purchased from outside originators. The company has completed seven such deals totaling $2.5 billion so far this year.