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2nd Flagstar RMBS issue in the works

Flagstar Bancorp Inc. has laid the groundwork for its second prime jumbo residential mortgage-backed securitization in a span of roughly three months after a decadelong absence from the private-label market.

The company on July 31 closed the $443.8 million Flagstar Mortgage Trust 2017-1, which was backed by 15- and 30-year jumbo fixed-rate loans originated by Flagstar Bank FSB through its retail, broker and correspondent channels. Materials attached to an asset-backed securitizer report filed Oct. 17 suggest a similar diversity of production channels for the loans to be included in the forthcoming Flagstar Mortgage Trust 2017-2.

A Clayton Services due diligence report contained a review of 847 loans selected for the transaction. Of those, approximately 72% were originated through the correspondent channel on a flow basis both with and without delegated underwriting. The broker channel accounted for 21.5% of the loans Clayton reviewed, with the retail and correspondent bulk channels serving as the source of 3.5% and 3%, respectively, of the loans. Approximately 66.1% of the loans included in the first Flagstar deal came from the correspondent channel.

Flagstar CFO James Ciroli, when asked during an appearance at an August investor conference about the company's first RMBS deal, said the execution of that transaction exceeded internal expectations. But, he added, "when you are just introducing yourself back into the marketplace, it's a tough go."

Ciroli said the San Francisco Bay Area presence of Cupertino-based Opes Advisors Inc. gave Flagstar a boost in "one of the highest-rent districts in the country," which lends itself to "a lot" of jumbo mortgage activity. Flagstar bought Opes, which had 45 retail home lending locations on the West Coast, in a May transaction.

"Before the RMBS securitization, we sold our jumbos to other people," he said. "Basically, we're their correspondents. And so by cutting out the middleman, we'll keep more of the economics of that transaction and bring most of it to the bottom line. We'll share some of it back to the borrowers and maybe improve pricing in some of those markets to garner more volume."

Flagstar's loans held for sale increased to nearly $4.51 billion as of June 30 from $3.18 billion as of Dec. 31, 2016, in preparation for the July securitization.

The Troy, Mich.-based institution is not the only sponsor active in a bustling private-label RMBS market.

JPMorgan Chase & Co. is expected to close the $911 million J.P. Morgan Mortgage Trust 2017-4 by month's end, according to an Oct. 17 DBRS presale report. Loans originated by JPMorgan Chase Bank NA account for 42.8% of the pool, the rating agency said, with United Shore Financial Services LLC, Caliber Home Loans Inc. and United Services Automobile Association among the other key producers.

One day later, DBRS issued preliminary ratings to the $638.1 million CSMC 2017-HL2, an RMBS deal backed by a pool of prime jumbo loans aggregated from a number of originators, including HomeStreet Inc., New Penn Financial LLC and Movement Mortgage LLC, by certain American International Group Inc. vehicles.

The $350.4 million Sequoia Mortgage Trust 2017-7, which included jumbo mortgages originated by First Republic Bank, Quicken Loans Inc. and a host of other lenders, closed Oct. 1. Sequoia is the securitization platform of mortgage REIT Redwood Trust Inc.

S&P Global Ratings put U.S. RMBS-related issuance at $49 billion for the first nine months of 2017, nearly double the $25 billion in volume in the asset class during the year-earlier period and well ahead of the full-year 2016 sum of $34 billion. The category, as defined by S&P Global Ratings, includes prime, reperforming and nonperforming, rental bond, servicer advances and risk-sharing deals.

The rating agency's U.S. RMBS issuance forecast for full-year 2017 stands at $60 billion. Its preliminary forecast for 2018 U.S. RMBS issuance ranges from $60 billion to $80 billion.