Redwood Trust Readies First Private-Label RMBS Deal in Two Years

A California-based real estate investment trust (REIT) has made a move that onlookers say could restart the gridlocked secondary market for private-label securities.

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""Redwood Trust Inc."":http://www.redwoodtrust.com plans to sell the first private securitization of newly originated mortgages since 2008.

According to the ""preliminary term sheet"":http://sec.gov/Archives/edgar/data/1176320/000114420410021408/v181786_fwp.htm filed with the Securities and Exchange Commission (SEC), the residential mortgage-backed security (RMBS) consists of 225 first-lien hybrid mortgage loans worth approximately $222 million.

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Media reports say the loans are high-quality prime jumbo mortgages made by a unit of Citigroup Inc. over the past 11 months.

Sequoia Mortgage Trust 2010-H1, as the bond has been dubbed, could be a big step toward restoring a secondary mortgage market left stagnant by the housing crisis, when mounting defaults caused investors to recoil.

Such ""private label"" mortgage bonds â€" meaning those that don't come with a guarantee from Fannie Mae, Freddie Mac, or other government agency â€" disappeared from the market as mortgage conditions began to deteriorate. A resurgence could help to keep interest rates low and free up more capital for lenders to make new loans.

According to the American Securitization Forum (ASF), it is critical to restart the private-label mortgage capital market in order to reduce the housing market's dependency on the federal government and get credit flowing again to American consumers.

Several of the big banks have snagged a piece of the action â€" a strong sign that the market is ready to begin securitizing again. Citigroup is listed as the lead manager for the deal, JPMorgan Chase is co-manager, and Wells Fargo is named as trustee and custodian.