Oct. 31 (Bloomberg) -- Citigroup Inc., the bank rescued with a $45 billion capital injection from taxpayers during the financial crisis, is planning its first sale of bonds tied to new home loans without government backing since the market’s collapse in 2008.
The transaction is backed by $210 million of prime jumbo mortgages acquired by the New York-based company’s investment bank from lenders led by Nationstar Mortgage LLC, DBRS Ltd. said today in a statement. The credit grader plans to assign AAA rankings to $196.3 million of the debt.
“The ratings reflect transactional strengths that include high quality underlying assets, well qualified borrowers and satisfactory third-party due diligence review,” DBRS said.
Scott Helfman, a spokesman for Citigroup, declined to comment.
While non-agency bond issuance was growing earlier this year after halting five years ago amid tumbling home values and soaring defaults, sales have slowed since July as investors demand higher relative yields on the securities and banks seek jumbo loans for their balance sheets. Shellpoint Partners LLC said this month it was canceling a planned deal and would sell the loans without packaging them into bonds.
About $12.5 billion in deals tied to new loans have been completed this year, compared with $3.5 billion in all of 2012 and a peak of $1.2 trillion in each of 2005 and 2006, according to data compiled by Bloomberg. Since the crisis, Citigroup has helped underwrite deals by other issuers and sponsored transactions that packaged older bonds and loans.
A weakness of the bank’s planned transactions is that Citigroup’s “backstop” on the warranties of loan quality provided by originators can lapse after a certain period of time, DBRS said.
Jumbo home loans are ones larger than allowed in government-supported programs, currently as much as $729,750 for single-family properties in high-cost areas. For Fannie Mae and Freddie Mac loans with the lowest costs for most types of borrowers, limits range from $417,000 to $625,500.
--Editors: John Parry, Alan Goldstein