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Wells Fargo re-enters private-label RMBS business

Wells Fargo is officially back in the private-label RMBS business. The megabank has released the details of its first post-housing-crisis RMBS offering (or residential mortgage-backed securities offering) that doesn’t carry a government guarantee, according to Fitch Ratings.

wellsfargoWells Fargo was among the largest issuers of private RMBS before the financial meltdown in 2008. According to Fitch analysts, the issuance will likely spur other big banks to pursue their own deals.

Since the financial crisis, most mortgage bonds have been guaranteed through Ginnie Mae or the government-sponsored enterprises Fannie Mae and Freddie Mac. JPMorgan Chase & Co. re-entered the private-label residential-bond market in 2013 with its first RMBS offering.

“More large banks will need to view nonagency RMBS as a viable financing option in order for the private-label market to play a more meaningful role in the U.S. mortgage sector,” said Grant Bailey, head of US. RMBS at Fitch Ratings.

“Wells Fargo’s return is a notable step in that direction," he added.

Unlike the pre-crisis era that led to a proliferation of high-risk mortgages underpinning securities that ultimately imploded, the mortgages underpinning the Wells Fargo offering are of exceptional quality. Fitch plans to assign AAA ratings to the majority of the certificates. The certificates are underpinned by 660 prime fixed-rate mortgages with a total balance of $441.25 million. The average FICO score is 779, and the loan-to-value ratios are a low 69.4 percent, according to Fitch.

The average loan size is $340,669. These are fully documented loans and were originated through retail channels, which tend to be less susceptible to fraud risk compared with loans that come through correspondent and broker channels.

About 37 percent of the pool’s loans are concentrated in California. Among metros, the largest concentration is in New York (23.7 percent), followed by San Francisco (12.6 percent) and  Los Angeles (11.9 percent).

Wells Fargo first announced last year it was planning to get back into the RMBS market after a decade hiatus. Last week, Bloomberg News reported that the bank had the offering nearly ready, and provided some general details about it. 

“Wells Fargo has previously disclosed plans to re-enter the private RMBS market to continue to best serve our mortgage customers as the market evolves and to expand our funding sources,” said Wells spokesman Tom Goyda in a statement released to Scotsman Guide News.

“We have now released details of a transaction that includes nonconforming prime loans consistent with those we have been putting on our balance sheet for the past several years,” Goyda said. Goyda declined to comment on future issuances. 


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