The first recently originated private-label/Jumbo securitization to hit the market since 2008 shows a deal of this type can be issued despite today's uncertain regulatory environment, but in such an environment the kind of immediate business incentives needed to bring a full market together to do such deals are still not clear.
"It is very good that a deal has been done, but you cannot declare a market from one deal," said Richard Dorfman, the head of the Securities Industry and Financial Markets Association's securitization group and the former president of the Federal Home Loan Bank of Atlanta. "Will it trade? We need to see what profitability was there, why it was bought and who bought it. We need to learn what there is to learn from it, and use the information from this and any other new deals as we work to revive this essential market."
Among other things, the way the $222 million Sequoia Mortgage Trust 2010-H1 transaction by seller/sponsor RWT Holdings (a wholly-owned subsidiary of Redwood Trust) addresses proposed risk retention requirements is interesting.
The deal retains both a 6.5% "horizontal" or unrated slice or the original principal balance as well as a 5% "vertical" slice of the rated, offered certificates, noted Tom Deutsch, executive director of the American Securitization Forum.
A proposed 5% risk retention requirement is still seen as a somewhat significant hurdle for private-label market participants, particularly given that it would be unhedged through all of the verticals for the life of the bond under the Securities and Exchange Commission's (SEC) proposal now out for comment, said David Hurt III, senior vice president at First American LoanPerformance. "That's real skin and cash in the game," he said of the 5% requirement, the structure of which has not been fully defined.
Despite this, it has been gaining in acceptance as it becomes increasing seen as the level necessary to give investors enough comfort to come back into the market, he said. In addition, history suggests that the 5% level is viable, Hurt added, noting an example from the thrift market of the 1980s, when MBS were getting underway. In those days "participations," in which percentages of whole loan pools were sold off in various splits between investors and lenders as a precursor to what became the MBS market, were common. In many cases these involved splits in which lenders retained 5%.
"It is possible to retain it," Deutsch agreed, in reference to the 5% requirement. "But it certainly radically restricts the amount of issuance that can occur."
While the Redwood deal does address the 5% requirement, because its seller is a REIT and could keep the loans it bought from originator/servicer CitiMortgage on balance sheet it didn't have to contend with the effects of the capital requirements triggered by recent accounting changes that are considered a hurdle for other major potential players in the market. The accounting changes/capital requirements, which can result in financial institutions having to consolidate their deals on their balance sheet and hold capital against them, continue to "eliminate the value of securitization for large banks because they would not retain any regulatory capital relief even though they sold all the credit risk to investors," Deutsch said.
With the exception of their size, the loans in the Redwood deal appear conservatively underwritten. Weighted averages are as follows: LTV, 56.57%; credit score, 768; DTI, 27.3%. Loan age is a matter of months, compared to the several years seen in other recent "new" private-label deals.
It's Official
The company announced today the pricing of a public offering of senior prime RMBS to be issued by Sequoia Mortgage Trust 2010-H1, a securitization trust sponsored by RWT Holdings.
The offered securities include $222,378,000 principal amount of Class A-1 Certificates, which will be rated 'Aaa' by Moody's Investors Service. The Class A-1 Certificates have an initial annual interest rate of 3.75%, which is subject to subsequent adjustments and as calculated in the manner stated in the prospectus relating to the offering, which is set to close on April 28.
It is being conducted as a public offering registered under the Securities Act of 1933 and the SEC- promulgated regulations.
As earlier reported by StructuredFinanceNews.com, the lead managing underwriter of the offering is Citigroup Global Markets while JPMorgan Securities is also acting as an underwriter of the offering.
