Redwood Trust is coming back to the market with its second residential mortgage-backed security (RMBS) of 2014, according to a pre-sale report from Kroll Bond Ratings Agency (KBRA).
The multi-tranche deal is for a total $306 million. All the notes have a final maturity of 30 years. All the A tranches have AAA(sf)’ ratings and credit enhancement of 7.75%.
Behind the deal are 438 mortgages, with a weighted average loan-to-value (LTV) ratio of 71.1%. The borrowers in the pool have a weighted average FICO of 768. About 87% of the mortgages meet the criteria of the Qualified Mortgage / Ability-to-Repay rule established under the Dodd-Frank Act.
The homes in the pool are concentrated in California, with 37.4% of the total located in the state. Washington accounts for 13.9%, and Texas 10.7%.
Among the leading sellers into the deal, Homestreet contributed 21.5% of the loans; FRB, 13.3%; and PrimeLending, 9.9%.
Redwood has been aggregating mortgage loans for over a decade. Performance of the Sequoia deals has so far been strong, with KBRA stressing the “minimal, if any, delinquencies” on the mortgages backing the 22 deals that have been issued off the trust since 2010. Redwood keeps the subordinated pieces of its deals, giving it an incentive to maintain a good performance.
While the LTV is low for Sequoia 2014-2, it is the highest yet for a KBRA-rated Sequoia securitization. Another weakness of the transaction is the fact that some of the loan sellers — there are 74 in total — are inexperienced and/or don’t have extensive financial resources. The latter is important should a breach of representation and warranty claims require a seller to buy back the loan.