Shellpoint Partners LLC, the home lender backed by mortgage-bond pioneer Lewis Ranieri, is planning a $251 million transaction in its first deal in the reviving market for securities without government backing.
The notes may be sold as soon as this week in a deal underwritten by Credit Suisse Group AG, according to a person with knowledge of the transaction who asked not to be named, citing a lack of authorization to speak about the offering.
Sales of debt known as non-agency mortgage securities are recovering after freezing five years ago amid tumbling home values and soaring defaults, following issuance of $1.2 trillion in each of 2005 and 2006. Deals tied to new loans have exceeded $7 billion this year, up from $3.5 billion last year and less than $700 million in 2011, according to data compiled by Bloomberg.
While the regulator overseeing government-supported Fannie Mae (FNMA:US) and Freddie Mac has sought to reduce their role by almost doubling their mortgage-bond guarantee fees, Ranieri said today that the pace of change has been too slow.
It’s “completely unacceptable” that the federal government backs about 90 percent of the mortgage market, Ranieri said at the Bipartisan Policy Center in Washington. “The federal government should not own the mortgage market.”
Investors have been demanding higher yields to own non-agency debt relative to benchmarks amid the expanding supply, widening spreads on government-backed bonds as the Federal Reserve signals it may curb its bond buying and the threat that rising interest rates will extend the lives of the securities as refinancing slows.
Redwood Trust Inc. sold top-rated securities at a spread of 2.21 percentage points on June 11, compared with 1.75 percentage points in April and as low as 0.97 percentage point in January. The Mill Valley, California-based company and other issuers have been issuing bonds tied to jumbo mortgages.
Other sellers include Credit Suisse Group AG (CS:US), EverBank Financial Corp. and JPMorgan Chase & Co., with investment firms Two Harbors Investment Corp. and Invesco Mortgage Capital Inc. saying they’ve participated in the revival by purchasing junior-ranked portions of deals.
Ranieri, who helped expand the mortgage-bond market in the 1980s while at Salomon Brothers Inc., is chairman of Shellpoint and his Ranieri Partners LLC is a part-owner of the firm. He said today that new regulations shouldn’t prevent prudent lending to borrowers with low down payments.
“I’m perfectly happy to do it right, and we have a history of how to do it right, but this is like wearing a hair coat,” he said.
Jumbo home loans are ones larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in some areas. For Fannie Mae and Freddie Mac loans with the lowest costs for borrowers using 20 percent down payments, limits range from $417,000 to $625,500.
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