Redwood Trust wasted no time in launching its first offering of the year of residential mortgage bonds last week.
The $343.28 million Sequoia Mortgage Trust 2017-1 looks a lot like the three deals the sponsor completed in 2016: it is backed by jumbo loans to high quality borrowers with plenty of equity in their homes.
Issuance of prime jumbo RMBS slowed considerably in 2016, with just eight deals completed through early November, down from 35 in 2015 and 28 in 2014, according to rating agency DBRS. Among other reasons, sponsors had a hard time acquiring loans because banks that originate them, as well as other investors, have preferred to hold them on balance sheet.
However, Redwood executives noted in November that execution in the securitization market had improved throughout the year. On a Nov. 7 conference call to discuss third quarter results, chief executive Marty Hughes said that Redwood had inventory to launch another transaction and might do so by the end of 2016, depending on spreads and volatility.
“We are lavishly fans of securitization,” Hughes said, according to a transcript published by Seeking Alpha.
SMT 2017-1 will issue super senior notes that benefit from 15% credit enhancement and senior notes with 5% credit enhancement; all are provisionally rated triple-A by Kroll Bond Rating Agency. There are also four subordinate tranches with ratings ranging from double-A to double-B and an unrated tranche.
The notes are back 460 fully-amortizing, fixed-rate mortgages. The pool’s weighted average loan age is 2.2 months. The weighted average loan to value ratio is 66.1%, and the combined LTV, including other household debt, is 68.1%. This provides a “substantial margin of safety against potential home price declines,” according to Kroll. Borrower credit quality is likewise strong, as evidenced by the WA original credit score of 769.
A significant portion of the borrowers exhibit a substantial amount of liquid reserves. Most loans indicate prudent debt-to-income (DTI) ratios, especially given relatively high borrower incomes, with a WA DTI of 31.7%.
In its presale report, Kroll noted that Redwood continues to diversify the loan sellers contributing to its transactions; the loans in SEMT 2017-1 coming from 132 different originators, with Quicken loans (7.8%) and First Republic Bank (5.6%) being the highest contributors. The loans will be serviced by Shellpoint Mortgage Servicing (82.3%), Cenlar (12.1%), and First Republic Bank (5.6%).
SEMT 2017-1 has four loans with a current balance that is above $1.5 million. The largest loan is approximately $1.9 million, which represents approximately 0.6% of the mortgage pool.