Investments Lending

Two Harbors bailing on jumbo bonds already impacting mortgage market

Ripple effect already takes down one jumbo originator, for now

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[August 1: Article updated to include comment from Parkside Lending, which is one of the top originators in Two Harbors’ deals.] 

Two Harbors Investment Corp. shocked the mortgage industry Thursday when it announced that it planned to shutter its mortgage loan conduit and securitization business.

As HousingWire wrote Thursday, Two Harbors was a relatively consistent issuer of prime, jumbo residential mortgage-backed securities in the post-crisis era.

Last year, for example, Two Harbors issued seven jumbo RMBS deals under its Agate Bay Mortgage Trust series. And so far this year, Two Harbors brought two more Agate Bay deals to the market.

But now, citing “challenging market conditions,” Two Harbors is abandoning the jumbo mortgage acquisition and securitization business.

“I am extremely proud of the efforts of our team since embarking on this initiative in 2011, as the company was able to build out a best-in-class infrastructure, develop a high quality network of mortgage loan originators and establish Agate Bay Mortgage Trust as a well-respected securitization platform,” Thomas Siering, Two Harbors’ president and chief executive officer, said Thursday.

But what about those loan originators? What happens to them now that there’s one less buyer and securitizer of jumbo mortgages in the market?

As it turns out, the ripple effect of Two Harbors pulling back from the jumbo loan market is already being felt, with one of Two Harbors’ top originators already saying it’s going to stop originating jumbo loans, at least for now.

According to mortgage industry insider Rob Chrisman, NYCB Mortgage Company, the mortgage subsidiary of New York Community Bank, sent a note out Thursday stating that it is suspending its jumbo fixed 30-Year loan program.

The reason: “the immediate and unexpected closure of one of our investors.”

A review of pre-sale documents for Two Harbors’ most recent jumbo RMBS deals shows that NYCB Mortgage and New York Community Bank are both among the top originators of the loans that backed those deals.

New York Community Bank and NYCB Mortgage were actually in the top two originators in each of Two Harbors’ last four jumbo RMBS deals.

In Agate Bay 2015-6, Two Harbors’ sixth securitization of 2015, loans originated by NYCB Mortgage constituted 13.9% of the $310.39 million deal. In Agate Bay 2015-7, loans originated by NYCB Mortgage represented 8.9% of the $334.76 million deal, while loans originated by New York Community Bank represented 5.3% of the deal.

In Two Harbors first (and only) two jumbo RMBS deals of 2016, loans originated by New York Community Bank represented 10.3% of the $304.75 million Agate Bay 2016-1 deal, and 13% of the $332 million Agate Bay 2016-2 deal.

New York Community Bank confirmed the suspension of the jumbo fixed 30-Year loan program to HousingWire, but noted that it’s only temporary.

“We are temporarily not accepting new registrations for only one specific segment of jumbo mortgage. That is new registrations for the 30-year term, fixed-rate jumbo,” the company said in a statement.

“All existing registrations of such 30-year term, fixed-rate jumbo mortgages will be completed through to loan closing,” the company continued.

“We also continue without change to accept new registrations for 15-year term, jumbo fixed-rate and all adjustable-rate jumbo mortgages,” the company added. “We are completing the process of replacing our previous investor with alternative investors for the 30-year term, fixed-rate jumbo and plan to again begin accepting new registrations in the near future.”

As for the rest of Two Harbors’ top originators, it’s radio silence so far, outside of loanDepot, which said that it won’t be commenting at this time, and the following comment from Parkside Lending.

“Our deep experience has taught us that in the mortgage industry, the only constant is change. That knowledge combined with the fact that one of our core values at Parkside Lending is centered around endurance and longevity means that we proactively prepare to handle the changing fluctuations of the market. Two Harbors' exit is unfortunate, but our strategic planning process has given us the foresight to partner with multiple investors,” said Matthew Ostrander, chairman and CEO of Parkside Lending.

Other top originators in Two Harbors’ deals include United Shore, Stonegate Mortgage, George Mason Mortgage, Broker Solutions, Provident Savings Bank, Prospect Mortgage, Commerce Home Mortgage, and Fairway Independent Mortgage.

HousingWire attempted to contact each of those companies to ask how Two Harbors’ decision would impact each company’s business, but, there’s no response from any of them thus far.

As for why Two Harbors is bailing on buying and securitizing jumbo loans, Matt Scully of Bloomberg gives a good explanation.

From Scully’s article:

Since the housing bubble burst, these bonds have been one of the few types of mortgage securities that investors have bought from issuers without government guarantees. The borrowers for jumbo loans tend to be wealthy and to have strong credit histories, making the bonds backed by these mortgages relatively safe.

But banks flush with deposits have been willing to pay more for these loans than bond investors, making it more profitable for lenders to sell mortgages to banks than to securitize.

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