As reported by StructuredFinanceNews.com yesterday (see related
Specifically, the mortgages in the pool are prime Jumbo fixed-rate loans with high FICO scores and low LTVs (<65%). The securitization, called Sequoia Mortgage Passthrough Certificates Series 2011-1, is the issuer's second Jumbo MBS deal within 10 months.
And similar to Redwood's Spring 2010 Jumbo transaction, which came after 18 months of inactivity in non-agencies, this new transaction gives hope for a real revival of private-label RMBS.
"This deal represents an important baby step for the non-agency markets where origination has been almost non-existent," Scott Buchta, head of investment strategy at Braver Stern Securities, said today in an emailed note."The fact that the deal is being done by a non-bank entity is important as regulatory and accounting constraints make securitization less attractive to banks. We would look for more non-bank transactions to slowly emerge as the year progresses. "
The firm's first Jumbo deal — which was oversubscribed — comprised mostly of Citigroup-originated loans. For this transaction, it's unclear which lenders have been upstreaming product to Redwood.
The REIT had hoped to issue a Jumbo trasaction as early as 4Q10, but back in the fall the the firm said in its Redwood Review publication that the secondary market at the time was "constrained by headwinds" — in particular what it called the government's (Fannie Mae and Freddie Mac) "outsized role" in the mortgage market.
The REIT does not fund mortgages directly and instead must rely on correspondent loan purchases from Jumbo originators, including depositories.
The shelf registration was filed by the company's Redwood Residential Acquisition Corp. and is part of its Sequoia Mortgage Passthrough Certificates program (Series 2011-1). For a full copy of the SEC filing, please click this
Credit Suisse is the underwriter and lead manager on the deal with JPMorgan Securities and Jefferies & Co. acting as co-managers. Citibank is the offering's trustee while Wells Fargo Bank is the master servicer and the securities administrator.
Prospects for Private-Label Sector
Redwood's deal has come at a time when investors have been looking for mortgage product. UCM Partners in its 2011 outlook for the non-agency RMBS sector said that higher yields have driven buyside appetite.
"Recently, Blackrock and Invesco raised public funds to buy loans. We believe this trend will continue as investors are hungry for higher yielding paper," said Jay Menozzi, chief investment officer at UCM Partners.
However, Menozzi estimated that the market is likely to see only around $2 billion to $4 billion in non-agency RMBS new issuance, which is in line with predictions made at the recent American Securitization Forum ASF 2011 conference.
This is partly because the potential supply of Jumbo loans has diminished from peak levels reached in 2005-2007 as prices of higher end properties in cities like Los Angeles, San Francisco and San Diego declined by 25% to 30% from the peak, making a larger percentage of new purchase loans eligible for agency securitization.
