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Latest Redwood RMBS deal holds highest collateral quality

Redwood Trust continues as the dominant player in the private mortgage finance market.

The real estate investment trust is exceeding its monthly issuance goal, setting out with its seventh private-label residential mortgage-backed securitization deal of the year. The collateral backing the deal is known to be of the highest quality.

The platform Sequoia Mortgage Trust 2013-7 reported a net unpaid principal balance of $453.6 million when assessing the planned transaction. Additionally, an average loan balance of $762.3 million is expected.

Kroll Bond Ratings pre-rated the Redwood (RWT) deal, giving the majority of the deal’s tranches expected AAA ratings.

Fitch Ratings also pre-rated the deal, with the expected outlook slated as ‘stable,’ giving the deal’s tranches expected AAA ratings.

The collateral pool consists of the highest quality loans this year, providing a substantial margin of safety against potential home price declines. 

Most notably is the 66% first-lien loan-to-value, and the 67% combined first and junior-lien LTV. While 35% of the mortgages have a combined loan-to-value ratio of 75% or greater, no loan has CLTV greater than 80%, Kroll explained.

The platform will contain 595 loans in the deal and the pool will be comprised of 98.8% 30-year, fixed-rate mortgages and 1.2% of 20-year, fixed-rate mortgages.

Cole Taylor Bank mortgages make up 7.8% of the transaction, while the ‘other’ originators represent the majority of the deal, or roughly 74.2%.

In addition, the weighted average borrower credit score is 770, higher than the average recent Redwood deals as well as within the ‘prime’ mortgage range.

Old habits are hard to break, and a concern for the credit rating agencies is the relatively high geographic concentration in California.

Nonetheless, the geographic concentration is lower than nearly all prior Redwood deals. 

“The pool is sufficiently diverse that no geographic concentration adjustment was warranted,” Kroll explained.

Nonetheless, as Redwood keeps meeting its monthly issuance goal, Kroll commended the REIT as an experienced aggregator, issuer and investor in the private-label market. 

“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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