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Wells Fargo files for 1st postcrisis prime jumbo RMBS deal

Documents filed Oct. 9 indicate that Wells Fargo & Co. has set in motion oft-discussed plans to securitize residential mortgage loans in what would mark the bank's first such transaction since the first quarter of 2008.

An asset-backed securitizer report filed by Wells Fargo Asset Securities Corp. references Wells Fargo Mortgage Backed Securities 2018-1 Trust, and it contains the results of an independent third-party due diligence review of the loans selected for inclusion in the transaction.

A Wells Fargo spokesman said that the bank's plans to reenter the RMBS market reflect its intentions to "continue to best serve our mortgage customers as the market evolves and to expand our funding sources."

Fitch Ratings said in an Oct. 10 presale report that the transaction is backed by 660 fixed-rate, prime jumbo mortgages with an aggregate principal balance of $441.3 million. The weighted average borrower FICO score is 779, and the weighted average original combined loan-to-value ratio is 73.1%. All of the loans were originated through the retail channel of Wells Fargo Bank NA.

"We anticipate that any RMBS offerings would include recently originated nonconforming, prime loans consistent with those we have been putting on our balance sheet for the past several years," the Wells Fargo spokesman said.

Wells Fargo management foreshadowed the bank's reentry to the RMBS market through a securitization of jumbo loans during a Sept. 14 presentation at an investor conference. There, said CFO John Shrewsberry in response to a question about potential loan growth, "we will be securitizing some of our jumbo loans, which has been a dormant market for a long time." Shrewsberry added that Wells Fargo's intention for such a transaction was as "a method of demonstrating liquidity and getting market pricing."

On a consolidated basis, Wells Fargo reported $283 billion of outstanding one-to-four family first mortgage loans as of June 30, down from $284.05 billion at year-end 2017. The decline reflected the net impact of several moving parts within the portfolio: the expansion the bank generated in nonconforming mortgages had been offset by the impact of pay-downs and sales of the so-called Pick-a-Pay loans that it acquired in connection with its 2008 purchase of Wachovia Corp. It reported that approximately 81% of the consumer first mortgage portfolio as of June 30 had been originated after 2008, the time at which the bank implemented more stringent underwriting standards.

It was also in 2008 that Wells Fargo issued its last public RMBS deals: Wells Fargo Mortgage Backed Securities 2008-AR1 Trust, Wells Fargo Mortgage Backed Securities 2008-AR2 Trust and Wells Fargo Mortgage Backed Securities 2008-1 Trust. The first two of those transactions were backed by adjustable-rate mortgages; the third had a pool of fixed-rate jumbo loans. All of the deals closed in the first quarter of that year.

The asset-backed securitizer report was signed by Wells Fargo Asset Securities President Peter Diliberti. It also listed as the contact person for the filing Diane Wold, an RMBS industry veteran who is best known for her long-standing role in running the U.S. residential mortgage loan securitization program at GMAC-RFC and, more recently, was involved in the since-discontinued prime jumbo securitization platform at mortgage real estate insurance trust Two Harbors Investment Corp. She also served as a founding member of the American Securitization Forum.

Wells Fargo and GMAC-RFC arguably ranked among the nation's most prolific RMBS issuers in the years prior to the onset of the financial crisis. An August settlement agreement between the bank and the U.S. Department of Justice over precrisis RMBS sales indicated that Wells Fargo issued 118 such transactions between 2005 and 2007 in addition to the third-party transactions into which its residential mortgages had been sold.

The postcrisis RMBS market, meanwhile, has been dominated by mortgage REIT Redwood Trust Inc. and the J.P. Morgan Mortgage Trust platform of JPMorgan Chase & Co. But a range of other issuers, particularly Flagstar Bancorp Inc. and American International Group Inc.'s Pearl Street Mortgage program, have also emerged in recent years.

With the Oct. 9 filing, Wells Fargo is poised to join those ranks.