Wells Fargo & Co (WFC.N), the largest U.S. mortgage lender, is hoping this year to sell bonds backed by mortgages without government guarantees for the first time since the 2008 financial crisis, the head of the bank's consumer lending division said on Thursday.
More than $1 trillion worth of mortgages were packaged into such securities each year in 2005 and 2006. But investors lost their appetite after large volumes of risky subprime mortgages backing such securities went bad, nearly bringing down the global financial system.
"There's been many many years since Wells Fargo has participated in any kind of private label market," Franklin Codel, who runs Wells Fargo's consumer lending division, told investors in a presentation.
Offerings of "private label" bonds, backed by new mortgages without government backing, have totaled less than $60 billion since 2009, according to Inside Mortgage Finance, a trade publication.
"This year one of our aspirations is to come back to the market with a couple of deals and we're taking a look at making sure we can structure those properly ... to try to test the market and see what we can do there to help bring confidence back," Codel said.
Since the financial crisis, mortgages that do not conform to standards set by the government, or by quasi-government entities Fannie Mae (FNMA.PK) and Freddie Mac (FMCC.PK), have been held in portfolio by banks like Wells Fargo. Usually these are so-called "jumbo" mortgages exceeding $427,000 in most parts of the United States.
Because banks take all the risk when they hold mortgages on their balance sheet, borrowers typically pay a higher interest rate than if the loans could be pooled and sold to investors.
Lenders that have done private label deals in recent years include JPMorgan Chase & Co (JPM.N) and Redwood Trust Inc (RWT.N).
(Reporting by Dan Freed in New York and Joy Wiltermuth; Editing by Richard Chang)