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Redwood Trust adds $350M to prime jumbo RMBS pipeline

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Redwood Trust’s seventh issuance of first-lien prime jumbo loans this year kept up the REIT's recent emphasis on pooling more purchase contracts into its securitized collateral pools.

Sequoia Mortgage Trust 2017-7 is a collection of 489 loans acquired by the real estate investment trust from 135 originators, including First Republic Bank (12.25% of the pool balance).

The capital structure consists of a $297.8 million tranche of super senior notes with 15% credit enhancement and $35 million in senior support notes with 5% CE; each series carries preliminary triple-A ratings from Moody’s Investors Service and bond rating agency KBRA.

As in previous Sequoia transactions, the super senior notes benefit from a shifting interest payment priority structure that allocates all prepayments and accrued interest to the notes for the first five years of bond proceeds.

The weighted average FICO of the underlying borrower base is 772, above that of recent transactions that were below 770.

The loans have a collateral balance of $350.4 million and were all recent originations of high-end homes (average balance of $716,000) with seasoning of just 1.33 months. The homes were purchases with average down payments of 31.5%, leaving a weighted loan-to-value ratio of 68.5% in line with prior transactions.

Purchase loans continue to be a focus of Redwood’s recent trusts. The latest deal includes a 69.9% share of owner-occupied home purchases vs. investor-owned houses. The previous four transactions all had pool levels in excess of 60% comprised of purchase loans; previous ranges were between 40.7% and 51.8 % since 2015.

One major change from the previous Sequoia transaction is the inclusion of a large portion of mortgages originated from Quicken Loans (6.78%). The Sequoia 2017-6 deal excluded mortgages issued by Quicken.

Another pool characteristic is the inclusion of more borrowers with multiple mortgages, climbing to 44.4% of the pool from 42.2% in the previous Sequoia deal.

More than 86% of the loans were originated through retail channel; 55% of the loans were originated in California (31% of the pool), Washington, Massachusetts, Texas and Florida.

All of the mortgages are qualified mortgages meeting safe harbor provision, preventing owners from filing claims against lenders over ability-to-pay disclosure and underwriting.

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RMBS Moody's Kroll Bond Rating Agency