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Wells Fargo to Re-enter the RMBS Bond Market

A decade after it moved out of it, Wells Fargo Bank [1] is planning to re-enter the private residential mortgage-backed securities (RMBS) market. The bank is said to be working on a $441 million mortgage bond without government guarantee along with an AAA rating, according to a Bloomberg [2] report, which said that the non-agency bond would include top portions and that the sale was likely to be finalized this week.

The only other big bank to have recently entered this space is JPMorgan Chase.

Speaking to DS News, a spokesperson for Wells Fargo said that its reentry into the market was to continue to “best serve our mortgage customers as the market evolves and to expand our funding resources.”

While declining to comment on the specific details about the transaction, the Wells Fargo spokesperson said, “We anticipate that any RMBS offerings would include recently originated non-conforming, prime loans consistent with those we have been putting on our balance sheet for the past several years.”

The bank couldn’t have picked a better time to enter this market with the issuance of private-label RMBS hitting a post-crisis high of $75 billion in 2018, according to Bloomberg, due to heavy investor demand for non-qualified mortgage transactions

Wells Fargo had been one of the top RMBS lenders before the crisis with more than $1 trillion worth of mortgages sold in 2005 and 2006, the Bloomberg report said.

The news of Wells Fargo’s reentry into private-label RMBS markets comes months after the bank reached a settlement [3] with the Department of Justice (DOJ) for $2.09 billion for allegations that the bank originated and sold residential mortgage loans that it knew did not meet the standard the bank represented in 2007. This allegedly caused investors, including federally insured financial institutions, billions in losses due to investing in these RMBSs which contained loans originated by Wells Fargo, according to a statement by the DOJ.