Wedbush downgrades Redwood Trust to Neutral, lowers price target to $6.50

As previously reported, Wedbush downgraded Redwood Trust to Neutral from Outperform with a price target of $6.50, down from $8. The firm’s operative position has been that as long as the 10 year holds below 4.50%, most of the housing finance companies Wedbush follows should be able to operate with an acceptable — though less than stellar — level of origination volumes, gain on sale margins, lending spreads, and operating margins. The current spike in rates has pushed beyond that benchmark, and the firm says it has to rethink where it is on the group. As a correspondent lender in the jumbo market and a lender into the business purpose market, higher for longer is likely to challenge Redwood’s operations on several fronts for an extended period of time, in Wedbush’s view.