Redwood Trust is gaining ground in the Jumbo -mortgage market
“This is a lot of market share,” said CEO Chris Abate Housing In an interview.
In after the regional bankless unrest in 2023, when institutions such as First republic” Signature bench And Silicon Valley Bank Collapse began to withdraw deposits from holding mortgages on their balance sheets. Redwood in turn works on activating the previously “sleeping” Jumbo market.
Redwood now estimates the share of the Jumbo space at 6% to 7%, an increase of 5% in 2024 and a long-term average of approximately 2%.
“The housing market remains difficult; we think 6% [mortgage rates] As the Support Center where you start seeing the question in housing. The mortgage interest rate was closer to 7%, so there has been a limited new production activity, “said Abate.” But there is more than a trillion dollar on seasoned Jumbo mortgages on bank balance sheets. ”
To conquer this opportunity, Redwood works together with regional banks, many of which have no broker-dealer options or capital markets infrastructure. In contrast to larger banks and broker, Redwood position himself as a cooperation partner for these institutions.
Redwood’s business model is comparable in structure, although smaller in scale, with that of Fannie Mae and Freddie Mac. The company does not come or service loans, but acts as a liquidity provider, buys loans and sells them on the secondary market through securitisations. During his 30-year history, Redwood completed 140 securitization deals.
Despite the market volatility, the hunger of investors for Jumbo assets is “surprisingly robust,” said Abate. But he pointed to regulatory obstacles that can be relaxed to attract more international capital – especially from Europe and Asia. These include rules for storing risks and restrictions on public securitization platforms.
In the meantime, private capital could increase participation in the mortgage market with a retreat of the companies sponsored by the government.
“We have received enormous studies from private credit institutions invested among the home mortgages because of the dominant share of the government – there is more capital today to get into the private sector than there has ever been in my experience,” said Abate.
He sees the Trump administration as willing to “deliver philosophically, the playing field” between the private sector and the GSEs. From a realistic point of view, however, he believes that the release of the companies from the conservatory will not take place before 2027 or 2028 for various reasons. These include the 2026 interim elections, a potential recession and the need to build up capital.
Moreover, the government must TreasuryThe senior preference shares in common equity and obtain credit ratings for the securitizations of the GSEs. There will also be some political opposition, Abate said.
“There will be many fights,” he added. “You Would not like to see a big shock for mortgage interest or large barriers to access to home, with regard to matters such as loan limits or warranty for reimbursements. Gradual changes are logical. ”
On the macro -economic front, Abate said that the economy clearly slows down, which will make the credit market more challenging in the second half of the year. He also pointed to the historically wide spread between 10-year-old Treasury revenue-4% approach and mortgage interest rate, which remain in the high 6% to a low reach of 7%.
“That [gap] Could close if the spreads tighten, “said Abate.” But in the end the drivers of the mortgage interest rate will be a function of the broader economy and the impact of rates, tax legislation and government loans. ‘
Redwood prepares accordingly and ensures that it does not hold an excessive risk of his balance with a consistent presence in the securitization market. The company recorded the net result of $ 14.4 million in Q1 2025, compared to a loss of $ 8.4 million in the previous quarter.
