Moody's tweaks assessment, tapped to rate Redwood deal
Redwood Trust (RWT) selected Moody's Investor Service to rate its latest $293 million mortgage-backed securities deal for the first time since the two firms disagreed over an issuance early last year.
Moody's was not selected to rate the last four deals from Redwood, a real estate investment trust in California and one of the very few issuers of private-label MBS since the credit markets collapsed in 2007.
In February 2011, Moody's released a report detailing credit risk from an earthquake the agency said could drive up losses on a Redwood offering because more than 56% of the underlying collateral was located in California.
The latest deal reached the market this week as the third in the annual series, Sequoia Mortgage Trust 2012-3. Less than half of the properties are located in California. Roughly 18% are located in San Francisco, down from more than 26%, 31% and 32% of the last three Redwood deals respectively, according to the Moody's pre-sale report.
Redwood also recruited more originators than before. There are 18 loan originators in the latest deal.
Moody's tweaked certain originator criteria on the deal to reflect Redwood as an aggregator instead of an originator. The agency put more emphasis on Redwood's ability to monitor future loan performance of its originators as opposed to its operational and financial stability as an originator itself. Moody's moved its "ability" rating weight to 40% from 30% and reduced its "stability" rating weight to 20% from 30%.
"As an aggregator, Redwood buys closed loans from approved sellers; it does not manufacture individual residential mortgage loans. Consequently, it does not need the level of human resources or support teams necessary to originate loans," Moody's said in the assessment.
Also, Moody's found that no loan Redwood securitized since 2010 had ever gone 60-plus days delinquent.
Both Kroll Ratings and Fitch Ratings were selected to rate the deal as well, leaving out Standard & Poor's. Many institutional investors will not buy a private-label security unless two of the three largest credit ratings agencies are selected to grade the offering.
"The change in geographic concentration from earlier Sequoia transactions, our positive originator assessments, the quality of the loans, the extensive third-party review, the satisfactory reps and warrants, and the structure that mitigated tail risk were factors in us being able to provide the desired Aaa (sf) rating on this deal," a Moody's spokesman said.
Redwood cannot speak on any deals before closing.