PennyMac Mortgage Investment Trust, run by former Countrywide executives, is planning its first sale of home-loan securities without government backing.
The deal is tied to $550.5 million of prime jumbo loans, representing a pool with "substantial borrower equity in each mortgaged property," Kroll Bond Rating Agency said today in a statement.
The firm, led by former Countrywide President Stanford Kurland, is entering the market as JPMorgan Chase & Co. analysts predict sales will continue a slowdown that started last month. Originations of jumbo loans for securitizations are being reduced by higher interest rates and by investors demanding higher relative yields on the bonds, Kurland, PennyMac's chairman and chief executive officer, said Aug. 8 on a conference call.
"In the short term, this has resulted in a somewhat diminished jumbo opportunity," Kurland, who left Countrywide in 2006, said on the call. "We remain optimistic that there is considerable opportunity for jumbo loans and private-label securitization to expand."
Countrywide, the largest mortgage lender at the time, ranked as the top issuer of mortgage bonds known as non-agency securities from 2005 through 2007, when the worst-performing of the debt that would later create a global financial crisis was sold, according to Inside MBS & ABS, an industry newsletter.
The lender, which was bought in 2008 by Bank of America Corp., created $405 billion of the bonds in those years. Bank of America now is seeking to settle claims that investors were misled about the quality of the underlying loans for $8.5 billion under an agreement requiring court approval.
Sales of non-agency securities have been building 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 total about $12 billion this year, up from $3.5 billion in all of last year, according to data compiled by Bloomberg.
Jumbo home loans are ones larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas. For Fannie Mae and Freddie Mac loans with the lowest costs for most types of borrowers, limits range from $417,000 to $625,500.
Banks including Wells Fargo & Co. and JPMorgan have been offering jumbo loans at rates less than available on traditional debt, crimping opportunities for bond creators. JPMorgan analyst John Sim cited competition from "asset-starved banks" in cutting his 2013 forecast for issuance to "closer to" $15 billion, from $20 billion, in a Sept. 13 report.
Potential reductions in size limits for government mortgage programs may help boost sales to $50 billion next year, he wrote.
Bank of America's Merrill Lynch unit is managing the transaction for PennyMac, which is based in Calabasas, California, where Countrywide also had its headquarters. Kevin Chamberlain, a PennyMac spokesman, didn't immediately return a telephone call for comment.
While loan-to-value ratios on the underlying mortgages in its deal average 69.7 percent, "a substantial margin of safety against potential home-price declines," they are the highest in any transaction rated by Kroll, which started assigning grades after the crisis, according to its pre-sale report.
PennyMac bought the mortgages from a "diversified group of originators," led by Amerisave Mortgage Corp. and Guaranteed Rate Inc., Kroll said. The large group "increases exposure to the underwriting standards and processes of originators with limited jumbo mortgage loan performance history," the firm said.
Clayton Holdings LLC conducted an "independent" review of the files of all of the debt, and found that "for vast majority of the loans, there were either no material exceptions to underwriting guidelines or there were generally adequate compensating factors for the exceptions found," Kroll said.
Kroll said it expects to grant AAA ratings to $507.8 million of notes with protection against loan losses of 7.75 percent, credit enhancement created by items such as other bonds suffering writedowns first. Borrower credit scores average 770, compared with cut-offs ranging from 620 to 680 for debt known as subprime.
