Goldman Sachs and Redwood Trust both priced prime RMBS transactions on Tuesday amid expectations of more prime jumbo supply from banks in the coming months.
Goldman Sach’s deal, named GSMBS 2023-PJ, raised a total of $304m. The transaction consists of seven tranches, with the first six tranches rated AAA by Fitch and DBRS, and the bottom ‘A24’ class rated AA+. The deal is backed by 268 prime jumbo loans.
The $350m deal from Redwood, named SEMT 2023-4, has a total of four tranches, all of which are rated AAA by Fitch and KBRA. It is the fourth deal from the issuer this year and is backed by a pool of 353 prime jumbo fixed-rate mortgages that Redwood acquired from several originators.
The prime jumbo market started to shrink significantly from around May 2022, when a crucial investor base, the US banks, stepped away from securities purchases. But there has since been a modest pick-up in issuance, according to Pratik Gupta, MBS strategist at Bank of America.
However, securitization of this asset class is still small compared to previous years. A total of 21 prime jumbo deals were priced so far this year, raising $6.7bn. Last year, some $23.3bn of prime jumbo RMBS were priced, compared to $60.9bn in 2021.
“Deals in the market recently are pricing one point back of to-be-announced (TBA) for 6% coupons, making the relative arbitrage attractive for securitization,” said Gupta.
He also expects to see more issuance from banks either from regular securitization or in CRT format, as they look to shrink their existing loan books to prepare for the new capital requirement rule.