Redwood Trust plans to issue its 11th RMBS deal of this year that has been assigned preliminary ratings by both Kroll Bond Ratings and Fitch Ratings.
Sequoia Mortgage Trust (SEMT) 2013-11 is backed by 453 first-lien mortgage loans with an aggregate principal balance of $346,322,236. Merrill Lynch, Pierce, Fenner & Smith is lead underwriter in the deal.
The loans in the pool are nearly all 30-year fixed-rate mortgages, with one being a 20-year fixed-rate mortgage. There are no interest-only loans in the pool.
Similar to previous SEMT transactions, Redwood has diversified the loan sellers contributing to the securitization pool. The largest originator of loans in the pool is Prime Lending (7.1%) and the second largest is Plaza Home Mortgage (6.4%). The remaining 86.5% comes from other smaller originators, each which contributed less than 5%, according to the Fitch presale.
Seller diversity is good for a deal because it helps reduce geographic concentration but it also increases exposure to the underwriting standards and processes of sellers with limited jumbo mortgage loan performance history.
“These smaller originators were not meaningfully active in pre-2012 prime, private-label RMBS securitizations and have a limited track record,” explained Fitch analysts.
Another concern is that new players may lack sufficient financial resources to fulfill their repurchase obligations if there was a breach of a loan representation and warranty.
According to Fitch, the percentage of these types of originators has increased significantly in Redwood Trust’s RMBS deals to 100% in the SEMT 2013-7 deal from 5% in SEMT 2011-2.
KBRA said that the third party due diligence review of all of the loan files for these sellers and the generally positive results of those reviews, reduces the risk of underwriting weakness and breaches of reps & warranties.
Redwood Residential Acquisition Corporation has also vouched to purchase any loan in breach of a rep & warranty, if a loan seller fails to cure, repurchase or substitute that loan.
The pool is characterized by substantial borrower equity in each mortgaged property, as evidenced by the weighted average LTV (70%) and CLTV (70%). The weighted average credit score of the mortgage pool is 773, which is well within the prime mortgage range. The SEMT 2013-11 pool is also notable for significantly higher loan seller diversity than prior KBRA-rated SEMT transactions.