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Investments

Latest Redwood RMBS features most diverse issuers yet

High quality of loans fuels new sellers to spread risk

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Redwood Trust (RWT) continues its veteran streak in the private-label residential mortgage-backed securities sector, with the latest deal featuring 78 sellers — the largest amount so far — selling into the mortgage bond pools.

While there are benefits to seller diversification, well-established sellers with historical performance profiles are becoming a smaller component of the Redwood pools, according to Kroll Bond Ratings.

“Strong representations, warranties and repurchase obligations provided by the sellers, as well as provisions for loan review and dispute resolution, also provide incentives for sellers to maintain discipline in loan originations and help protect bondholders from weakening underwriting standards,” Kroll explained.

The number of lenders in Redwood transactions has consistently increased since 2011 from two to 78 for its 12th deal, pointed out Fitch Ratings.

“The majority of the pools were originated by lenders with limited non-agency performance history — partially mitigated by the 100% third-party diligence conducted on these loans with immaterial findings as well as CE including an adjustment mitigating the potential originator risk,” the credit ratings agency noted.

Put simply, the high quality of loans, file reviews on the majority of loans in the pool and positive results for the file reviews provide mitigants to loan quality risk as the number of sellers increases.

The real estate investment trust is exceeding its monthly issuance goal, setting out on its twelfth nonagency RMBS deal of the year.

The platform Sequoia Mortgage Trust 2013-12 (RWT) reported a total balance of $324.9 million.

Kroll pre-rated the deal, giving the majority of the deal’s tranches AAA ratings.

The platform will contain 410 in the deal with the pool comprised entirely of fully amortizing fixed-rate mortgages, with 30-year FRMs accounting for all the loans.

First Republic Bank (FRC) mortgages make up 18.5% of the transaction, with ‘other’ originators representing the majority of the deal, or roughly 72.3%.

As Redwood keeps meeting its monthly issuance goal, Kroll commended the REIT as an experienced aggregator, issuer and investor in RMBS securitizations. 

"Historically, Redwood has generally invested in and securitized high-quality jumbo prime mortgages, which have performed well relative to the universe of non-agency securitizations," Kroll said. 

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