Sequoia Mortgage Trust is prepping a $333 million securitization of 335 prime jumbo fixed-rate mortgages, even though the mortgage industry is in an ongoing retreat.
The borrower profile is strong, with a debt-to-income ratio of 36.8%, moderate leverage level of 79% and a weighted average (WA) model FICO score of 765, according to Fitch Ratings. On a weighted average basis, the borrowers have reserves of some $499,809.
Kroll Bond Rating Agency, or KBRA, noted that fully amortizing, fixed-rate mortgages, mostly intended to finance primary residences will collateralize the mortgage-backed securities. Most of the mortgage providers originated the loans along traditional underwriting guidelines, with full documentation and on 30-year terms, according to the rating agencies. Select Portfolio Servicing will service the loans, while Mr. Cooper Master will serve as master servicer on the deal.
RWT Holdings is sponsoring the transaction, and will acquire the loans from Redwood Residential Acquisition, the rating agencies said. Wells Fargo Securities is the lead underwriter on the deal, which will issue the notes through a senior-subordinate, shifting-interest capital structure.
Fitch actually believes the shifting-interest structure is a potential credit negative for the deal. The subordinate classes receive only scheduled principal payments and are locked out of any unscheduled principal or prepayments for five years. The mechanism is meant to sustain subordination in the structure, should losses occur later in the life of the deal. If the transaction does not maintain specified credit enhancement levels, the applicable credit support percentage feature redirects subordinate principal to more senior asset classes, according to Fitch.
The senior-subordinate structure will provide some support to the timely repayment of notes. Sequoia's structure also stipulates that unpaid interest on stop-advance loans reduces the amount of interest that is contractually due to bondholders in reverse-sequential order. Fitch acknowledges that the feature helps to limit the leakage of cash to subordinated bonds, but rated bonds can also see their interest reduced in high-stress situations.
On average, the collateral pool has a loan balance of $936,893, with a seasoning of six months. The deal sources the mortgage loans from Redwood Residential Acquisition, but CrossCountry Mortgage is the largest originator in the pool, according to Fitch.
Both rating agencies intend to assign ratings of 'AAA' throughout most of the deal. KBRA says it will assign ratings of 'AA-' through 'BB+' to the subordinate B-1 through B-4 notes, while Fitch is expected to assign ratings of 'AA-' to 'BB' to the same notes.
