Redwood bringing $415 million RMBS to market

Redwood Trust (RWT) will bring a fourth privately funded residential mortgage-backed securities deal to market containing 446 loans with a balance of roughly $415.7 million, according to a pre-sale report released by Fitch Ratings Thursday.

Redwood remains the only issuer of a private-label RMBS since the financial crisis struck in 2007. Since then, Fannie Mae, Freddie Mac and Ginnie Mae have funded more than 95% of the mortgage market. Redwood’s last offering was a $368 million jumbo securitization in September. The previous one was a $290 million offering completed in March.

The latest deal from Redwood, a real estate investment trust based in California, resembles the previous three. The loans, according to Fitch went to high-quality borrowers with an average loan-to-value ratio of nearly 65%. The average FICO score is 770, and all of the loans are full documented.

There are still some concerns. According to Fitch, most of the mortgages are originated by smaller lenders with a limited history in private-label RMBS securitizations.

“However, every loan originated by these lenders was subject to a due diligence review and the results indicated sound underwriting practices,” Fitch said.

Like on previous Redwood deals, the credit rating agency is concerned with where the loans are concentrated. More than 26% of the jumbo loans are located in San Francisco. Although that’s slightly less than before, it’s still a concern if economic conditions in that particular are deteriorate it could affect the entire security’s performance.

Moody’s Investors Service issued a special report on a previous Redwood RMBS, bringing up concerns about how exposed the offering was to earthquake risk. Even Fitch said a natural disaster was a concern.

The mortgage servicers on the deal will be First Republic Bank, PHH Mortgage Corp., the special servicer Cenlar, and Select Portfolio Services.

Fitch expects to rate the two four classes of the deal representing more than $380 million of the loans AAA. It said it will not rate any class of the offering lower than BB, though there will be one non-rated class.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

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