Real estate investment trust Redwood Trust is keeping pace with its monthly issuance goal, setting out on its fifth and smallest private-label residential mortgage-backed securitization deal of the year.
The platform Sequoia Mortgage Trust 2013-5 reported a total unpaid principal balance of $463.3 million when assessing the planned transaction. Additionally, a total loan balance of $706.8 million is expected.
Kroll Bond Ratings pre-rate the Redwood (RWT) deal, giving the majority of the deal’s tranches expected AAA ratings.
Fitch Ratings also pre-reated the deal, with the expected outlook slated as ‘stable’, giving the dea’s tranches expected AAA ratings.
The platform will contain 609 loans in the deal and for the first time, all loans in the pool are entirely comprised of 30-year, fixed-rate mortgages, indicating riskier classes.
PrimeLending mortgages make up 8.3% of the transaction, while ‘other’ originators make up the majority of the deal, or roughly 91.6%.
In addition, the weighted average borrower credit score is 772, higher than the average for recent Redwood transactions as well as within the ‘prime’ mortgage range.
The platform has large loans relative to pool size and as a result, carries risk for the deal.
High net borrowers often buy very expensive homes with so-called ‘super jumbo’ or ‘mega jumbo’ mortgages. While the terms and underwriting of such loans may be conservative, they still present risk in the context of a pool where a loan may comprise close to 1% of the pool balance, according to Kroll.
“This risk is addressed through KBRA’s large loan stresses, discussed herein, which increases our ‘AAA’ loss level by 22%. The large loan, at $2.5 million, represents 0.54% of the mortgage pool,” the credit rating agency said.
Geographic concentration continues to remain a primary risk posted within all of Redwood’s deals.
As a result, geographic concentration of the pool was labeled as ‘high’ with significant exposure to assets located in California as well as a number of major metropolitan areas.
The main factor causing the increased geographic diversity in SEMT 2013-5 is the continued increase in the diversity of loan sellers. While the seller diversity helps reduce geographic concentration, it also increases exposure to underwriting standards and processes of sellers that lack RMBS performance history.
“Some of the sellers may lack sufficient financial resources to fulfill their repurchase obligations if they were to breach a loan representation or warranty,” Kroll said.
However, as Redwood keeps meeting its monthly issuance goal, Kroll commended the REIT as an experienced aggregator, issuer and investor in RMBS securitizations.
“Historically, Redwood has generally invested in and securitized high quality jumbo prime mortgages, which have performed well relative to the universe of non-agency securitizations,” the credit rating agency said.
