Redwood breaks RMBS drought ahead of schedule

Didn't expect issuance until 2H14

Redwood Trust (RWT) is bringing its first residential mortgage-backed securitization to market, its first of the year and in some time.

The once regular private issuer of jumbo mortgage bonds said it was looking to place a new RMBS in the second half of the year. The latest deal, then, is a little ahead of that schedule.

Fitch Ratings expects to rate the residential mortgage-backed certificates to be issued by Sequoia Mortgage Trust 2014-1.

In its presale, the $347.3 million deal will primarily be rated triple-A.

The certificates are supported by 429 mortgages.

Distributions of principal and interest and loss allocations are based on a traditional senior subordinate shifting interest structure.

Third-party, loan-level due diligence was conducted on 94.5% of the pool, and Fitch believes the results indicate strong underwriting controls.

The loans are priarily fixed-rate, with some hybrid adjustable-rate mortgages as well.

According to Fitch, all loans were underwritten in accordance with full documentation standards, and the borrowers have considerable home equity and substantial liquid reserves. The majority of the loans are fully amortizing, with only 3.2% having a 10-year interest-only period.

Servicing on 77% of the loans will be transferred to Cenlar.

First Republic Bank and PHH Mortgage will retain servicing on their respective originations.

CitiMortgage will act as master servicer for the transaction.

"The majority of the originators in this pool have limited performance history," the Fitch presale states.

"However, in addition to the positive representations and warranties framework, Fitch believes that the quality of the loan files and underwriting is sound through Redwood’s disciplined acquisition program as evidenced by the minimal findings of the due diligence review conducted on 100% of these lenders’ loans," they added.

Kroll Bond Ratings also issued a presale and outlined another potential risk.

"High net worth borrowers often buy very expensive homes with so-called “super-jumbo” or “mega-jumbo” mortgages," said Kroll Bond Ratings in its presale. "While the terms and underwriting of such loans may generally be conservative, they still present risk in the context of a pool where a single such loan may comprise close to 1% of the pool balance."

However, they note only four of the loans exceed $2 million, so this risk doesn't represent a material threat.


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