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Redwood Trust looking for scale with CoreVest buy, GSE pullback

Redwood Trust Inc. is gearing up for growth in the mortgage market just as the government-sponsored enterprise giants might be stepping back.

On Oct. 14, the nonbank mortgage company announced the purchase of CoreVest American Finance Lender LLC for $490 million. On an Oct. 15 deal call, management said the target has a tangible book value of roughly $360 million.

Redwood Trust CEO Christopher Abate said on the call that the company already had plans to roll out a securitization solely backed by mortgages to investor borrowers by next year. Purchasing CoreVest, which focuses on business-purpose loans like ones for single-family rentals, accelerates that timeline, he said.

CoreVest has been the most active sponsor of securitizations of single-family rental loans. It issued its most recent deal in July, which gave the company nine of the 13 multi-borrower single-family rental securitizations ever issued, according to a release from Kroll Bond Rating Agency.

Moving forward, Abate said Redwood would continue to look to securitize single-family rental loans.

"I would suspect that we are going to have a bias towards creating investments through that [securitization] channel versus a pure gain-on-sale opportunity," Abate said.

CoreVest's platform is on pace to generate $1.4 billion of volume this year, with roughly 70% of its production in the single-family rental product type. Earlier in the year, Redwood bought the 5 Arches platform, which is set to produce roughly $700 million of loan volume. Redwood Trust President Dashiell Robinson said Redwood would continue to securitize loans at a similar rate.

"The SFR loans that CoreVest securitizes, we expect to continue to have them do that. And the retained investments you can think there is probably between 6% and 10% of total production," he said.

Redwood Trust's management focused on the added scale the CoreVest acquisition brings. Abate said executives see scale as a driver of the transaction with plans to remain active in the securitization market.

"I do think over time, unifying the products and having different fulfillment channels but having one branded execution with loan officers would be a long-term strategic goal," Abate said.

Abate also said the company eventually plans to integrate these investor-focused products with its consumer business to drive greater scale, noting impending opportunities on the consumer side due to the upcoming expiration of the qualified mortgage "patch" for government-sponsored enterprises. The regulatory patch offers "qualified mortgage" legal protection for loans that meet underwriting standards of Fannie Mae or Freddie Mac. With the patch expiring and Fannie Mae and Freddie Mac expected to start retaining capital to exit conservatorship, analysts expect there to be opportunities for private players.