Redwood plans two more RMBS, CEO rails against second liens
Redwood Trust (RWT), the only firm to issue two private-label, residential mortgage-backed securitization deals since the downturn, said it is planning more by the end of this year. Redwood President and CEO Martin Hughes testified Wednesday before a Senate subcommittee hearing on the state of the securitization markets. "To be clear, Redwood Trust has a financial interest in the return of private-sector securitization for residential mortgages," he said. "We hoped that our decision to securitize loans in 2010 would demonstrate to policymakers that private capital would support well-structured securitizations that also have a proper alignment of interests between the sponsor and the triple-A investors." Hughes said a great deal of financial incentive is now gone from the private-label securitization market. Nonetheless, "We hope to complete two more securitizations in 2011 and securitize between $800 million and $1 billion for the year, and to build upon that volume in 2012," he said. "There are no good industry estimates for new private securitization volume in 2011, as the market is still thawing from its deep freeze." One of the nagging aspects of mortgage finance that Hughes felt is dragging on issuing new RMBS, is on the borrower level. In particular, Hughes indicated that second liens should be clearly disclosed to issuers and investors. In effect, second liens reduce the homeowner's skin in the game and increase the risk of default down the road. He said that homeowners should not put 20% down on a home to get a jumbo mortgage, and then pull out a second lien soon thereafter. "Basically, on day two, you no longer have any skin in the deal," he said. Hughes told the Senate subcommittee that a gradual strategy for reducing government-related mortgage originations is the best option. "Bring down loan limits slowly," while simultaneously lifting guarantee fees, he said. "Test it on a safe basis and see what comes out," Hughes said. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.