Once a prominent feature of the secondary mortgage market, prime jumbo residential-mortgage backed securities fell out of favor in the aftermath of the housing crisis.
According to an analysis released last year by Fitch Ratings, there were roughly $470 billion in jumbo RMBS deals issued from 2005-2008. Prior to 2005, there were $1.11 trillion in jumbo RMBS deals issued.
After the crisis, jumbo RMBS deals were rare, at least comparatively speaking. In 2010, there was $933 million in jumbo RMBS issuance. In 2011, there was just over $1 billion. In 2012, there was $4 billion. Jumbo RMBS issuance jumped to $13 billion in 2013, before falling to $8 billion in 2014.
While the post-crisis figures paled in comparison to the pre-crisis days, there were still a number of companies actively issuing prime jumbo RMBS deals.
But now, there’s one less.
Citing “challenging market conditions,” Two Harbors Investment Corp. announced Thursday that it is abandoning its mortgage loan conduit and securitization business.
Two Harbors was a relatively consistent jumbo RMBS issuer in the post-crisis environment, issuing two deals under its Agate Bay Mortgage Trust series this year.
Now, the company is saying that the current environment makes it difficult to grow the business.
The company made the announced Thursday in a press release, stating that the decision stemmed from “the challenging market environment facing the business, combined with the intent to reduce operating complexity and costs.”
The company also said that the move will allow for the reallocation of capital to “more attractive and efficient target assets.”
The company said that it expects the wind down process to be substantially completed by the end of 2016.
“I am extremely proud of the efforts of our team since embarking on this initiative in 2011, as the company was able to build out a best-in-class infrastructure, develop a high quality network of mortgage loan originators and establish Agate Bay Mortgage Trust as a well-respected securitization platform,” Thomas Siering, Two Harbors’ president and chief executive officer, said.
“However, we believe that current and expected mortgage market conditions and competitive pressures will prevent us from growing this business to a scale that meets our long-term goals and financial expectations,” Siering continued. “While the decision to exit this business was difficult, we believe it is in the best interest of our shareholders.”
The company said that the elimination of its loan conduit and securitization business will result in a one-time charge of approximately $3 million in the second half of 2016 in connection with the closure.
The company also said that it expects that the termination of its conduit and securitization activities will reduce ongoing operating expenses by approximately $10 to $11 million on an annual basis.
“I would like to thank all personnel impacted by this decision for their dedication and service to the company over the past several years,” Siering said.
“To our shareholders, we continue to be optimistic about the current and future state of our company, and we are encouraged about our recent results and trends in our business, all of which we will share during our upcoming second quarter earnings release and conference call,” Siering concluded. “We believe that the initiatives we are taking position us to become a more focused and efficient company, maximizing risk-adjusted returns to our shareholders and reinforcing our leadership position in the industry.”
