Latest Redwood RMBS carries geographical risk

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Real estate investment trust Redwood Trust ($21.45 1%) [3] is set to embark on its first private-label residential-mortgage backed securitization deal of the new year — arranged with Barclays ($20.03 0.51%) [4] — on Jan. 15 [5].

The REIT closed its sixth [6] deal of 2012 in the fourth quarter and has set a broad goal to issue about one RMBS a month in 2013.

Moody’s Investors Service pre-rated Sequoia Mortgage Trust 2013-1, giving the majority of the deal’s tranches AAA-rated securities, along with subordinate classes.

Click on the chart to view the bond structure and ratings.

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Fitch Ratings also pre-rated the Sequoia Mortgage Trust 2013-1, with the expected outlook slated as "stable" and the majorty of the tranches also receiving AAA ratings.

Click on the chart to view the capital structure.

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The platform will contain 511 loans in the deal with the transaction consisting of two mortgage pools supporting two groups of senior classes, but sharing one set of subordinate classes. The total balance of the deal is about $398 million.

The pool largely contains fixed-rate mortgages originated by 37 lenders. EverBank mortgages make up the majority of the transaction, or roughly 37% of the loan pool.

About 91% of the pool was originated by lenders with limited, non-agency performance history, the highest percentage to date relative to prior SEMT deals, Fitch said.

Other originators include First Republic Bank, Fremont Bank, Flagstar Bank, Rockland Trust Company and Prime Lending, Moody’s said.

High geographic concentration was a primary risk posted within the deal.

In this transaction, losses resulting from a severe economic downturn or natural disaster in San Francisco or Los Angeles would be higher than in any other geographically diverse pool. About 42.9% of the properties backing the mortgages are in California, with roughly 20% concentrated in the San Francisco area.

Another geographical risk are four of the loans in the deal are located in counties for which Federal Emergency Management Agency has made a disaster declaration as a result of damage caused by Hurricane Sandy.

The transaction consists of two pools, with pool one comprised of a combination of mortgages with terms of 30-years or less as well as adjustable-rate mortgages and pool two comprised of 100% of 30-year fixed-rate mortgages. 

In addition, the top 20 borrowers make up 8.63% of the pool. The weighted average FICO score of borrowers is 760 due to significant liquid cash reserves and sizeable equity in their properties.

About 79% of the transaction consists of fixed-rate fully amortizing mortgages, which will not expose borrowers to any payment shock for the existence of the loan.

“We have assessed Redwood as an above average aggregator of prime jumbo residential mortgage loans, based on its historically strong collateral performance, above average lending practices, and above average operational stability,” Moody’s said.

cmlynski@housingwire.com [9]