The structure, in which the collateral is split between one pool that has faster-amortizing loans and one that does not, allows the issuer “to market some fast-paying bonds,” Moody’s Investors Service associate analyst Gerard Mazi explained. He said the structure has occasionally been used before by the issuer in post-financial crisis deals, but not on a regular basis.
But because of this structure’s complexities, Moody’s requires “marginally higher” credit enhancement than in more straightforward structures, vice president-senior credit officer/manager Kruti Muni told this publication. She said Sequoia/Redwood was quick to address concerns about the “Y” structure in the rating process.
Moody’s and Fitch both assigned on a preliminary basis their top structured finance ratings to four series of senior certificates in the transaction, Sequoia Mortgage Trust 2013-1. Moody’s left the remaining five subordinate series unrated, but Fitch as it typically does also assigned expected ratings to some of the subordinate tranches, assigning ratings ranging from an investment grade AAsf to a speculative grade BBsf to four of them.
Almost $400 million in collateral with roughly a 20% concentration of relatively shorter-term 10-, 15- and 20-year loans back the certificates, according to Moody’s. One pool of collateral is comprised of mortgages with terms of 30 years or less and adjustable-rate mortgages, while the other consists of 30-year fixed-rate product.
In addition to the Y structure risk, the Moody’s analysts noted that the San Francisco concentration risk from Redwood’s main originators persists in line with previous deals on an aggregate basis on this one, and within the context of the 30-year pool it is a bit more prominent.
However, the issuer’s performance history remains strong with no delinquencies of 60 days or greater in any of its post-financial crisis transactions, Mazi said. The presale report indicates underwriting and credit quality remain strong, with the latter backed by “unambiguous representations and warranties.”