Should we envy or pity Redwood Trust, a publicly traded REIT that has gained fame for being one of the only firms to come to private label residential mortgage backed securities transactions since the financial crisis?

The trust completed securitizations in April 2010 and in March 2011, and hopes to complete two more this year.

Redwood's main market is the prime jumbo mortgage market, where Fannie Mae and Freddie Mac cannot play as they are capped at $729,750. Redwood would certainly like to phase out the government-sponsored enterprises from more of the residential market, which would open it up for more private insurers.

This message dovetails nicely with critics of Fannie and Freddie who would like to see more private-sector solutions emerge as the two GSEs are responsibly wound down. They have found a kindred spirit in Martin Hughes, president of Redwood Trust. He disputes the notion that the market will seize up and interest rates will soar if the GSEs are forcibly backed out of the market. There may be a role for the big two as a guarantor of sorts, as many have suggested.

Hughes would certainly like to see an increase in the fee they charge to guarantee the mortgage securities they sell to investors, as the Treasury as proposed.

Many will stick to the notion that interest rates would have to rise once you remove government-sponsored entities as issuers. The market would likely view private securitizations t differently--or would it?

For more:
- here's an article on Hughes' recent testimony in Congress

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