Officials at Redwood Trust suggest that the change in pricing for AAA tranches on new non-agency MBS in recent months has been driven by supply and demand, not concerns about the quality of issuance. “The market had come too far, too fast, and the supply and demand imbalance initiated a correction,” Redwood said. The premium on Redwood’s latest transaction was about 1.75 percentage points above an interest rate benchmark, resulting in a 2.59 percent premium for investors. Redwood said deals it issued in January sold with premiums as low as 97 basis points with yields of less than 200 bps for investors. The real estate investment trust said...
As more firms contemplate issuing jumbo MBS, there are growing concerns that there could be a few speed bumps along the way, namely rising whole loan prices, and an increase in the cost of money for investors that use swaps to fund their purchases of the AAA-rated tranches. The increase in whole loan prices is less of a concern, because it was somewhat anticipated given the “hot” nature of the market. Over the past few months, prices for jumbo whole loans have risen to as high as 103, compared to 101 and 102 last year. Craig Cole, a jumbo consultant and a former top production manager at Union Bank, San Francisco, told...
Issuance of non-agency jumbo mortgage-backed securities continues to increase along with the number of issuers participating in the market. Issuers acknowledge that spreads on AAA non-agency MBS are widening, causing margins to decline, but they suggest that a significant increase in non-agency MBS production will help tighten spreads, benefitting issuers. Credit Suisse issued its third non-agency jumbo MBS of the year this week. The $393.77 million deal received AAA ratings from DBRS and ...
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