Redwood Trust is back with is fifth private-label residential mortgage backed securitization of 2013, according to a presale report published today by Kroll Bond Ratings.
Sequoia Mortgage Trust 2013-5 consists of two fixed rate tranches with a preliminary ‘AAA’ rating from Kroll. The capital structure will also offer $29 million of fixed rate notes that have not been rated by Kroll.
Kroll noted in its presale that collateral backing SEMT 2013 is more geographically diverse than any prior SEMT transaction the ratings agency rated. The pool is sufficiently diverse that no geographic concentration adjustment was warranted.
However, with the increased geographic diversity comes an increase in the diversity of lenders originating the loans included in the securitized pool. This increases exposure to the underwriting standards and processes of sellers that KBRA said it is not familiar with; many of these lenders also lack significant jumbo mortgage loan performance history.
The deal is structured with the familiar Redwood enforcement mechanisms that require the loan sellers to sign a binding arbitration agreement so that if there is an issue with the loan and it’s unclear whether it’s a credit vs. underwriting issue, it goes to arbitration. If it’s decided it’s a credit issue, Redwood takes the loss; if it’s an underwriting issue, the seller has to buy the loan back.
But Kroll said in the presale report that the some of the sellers in this latest deal may lack sufficient financial resources to fulfill their repurchase obligations if they were to breach a loan representation or warranty.