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Wells Fargo Welcomes Back Private-label RMBS

Wells Fargo is looking to bring back the private label bond this year—something the bank hasn’t done since 2008, on the tail-end of the housing crisis.

Franklin Codel, Head of Consumer Lending a Wells Fargo, said as much on Thursday in an investor’s presentation.

"This year one of our aspirations is to come back to the market with a couple of deals and we're taking a look at making sure we can structure those properly ... to try to test the market and see what we can do there to help bring confidence back,” Codel said. “There’s been many, many years since Wells Fargo has participated in any kind of private label market.”

So-called “private label” bonds are backed by non-government guaranteed mortgages. They typically afford lower interest rates to borrowers, as they allow a bank or financial institution to offload the risk to an investor, instead of keeping it all in-house. Both JPMorgan Chase and Redwood Trust have started securitizing private label bonds in the last few years.

In 2005 and 2006, about $1 trillion in mortgages were securitized this way every year, but after many huge amounts of them defaulted, the private label market hasn’t been the same since. Less than $60 billion in these bonds have been created since 2009.

In fact, Wells Fargo is still answering for its poorly backed RMBS from the crisis-era. In March, [1] a Federal judge allowed several claims against the bank to move forward. Filed by several investor funds, the claims alleged the bank owes billions of dollars in losses on residential mortgage-back securities. Just a few of the investors include Royal Park Investments, Blackrock Allocation Target Shares, and Phoenix Light SF Limited.

Standard & Poor’s predicts the private market to hit $50 billion for the year [2], up from the $35 billion it originally predicted. The jumbo prime RMBS market [3] hit $2.6 billion in transactions in just the first quarter of this year.