Sequoia Mortgage Trust has in the works another private label securitization backed by recently originated jumbo loans, a type of transaction that continues to be rare in the post-downturn market.
More than 360 fixed rate loans with a total balance of about $328 million back the transaction, according to Fitch Ratings' presale report on it.
SEMT deals typically have had either fixed rate or hybrid jumbo collateral and this deal also had a 10% IO component, Fitch managing director Roelof Slump told this publication. Past deals have had a range of IO percentages that this one is at the low end of.
He said Fitch has examined both hybrid and IO components and found borrowers are not subject to the kind of payment shock concerns that sometimes result from these features as they were pre-qualified at higher payment rates.
The Sequoia Mortgage Trust 2012-2 deal has an increased percentage of loans originated by smaller lenders with limited performance histories than in past deals, but also a decrease in San Francisco concentration risk.
There is an 18.5% concentration of properties in the San Francisco MSA as compared to 26.4% in the previous Sequoia deal.
Better geographic diversity in this transaction does contribute to lower risk, Slump said.
The smaller lender concentration is 38.6% in SEMT 2012-2 as compared to 34% in the previous SEMT 2012-1 deal.
Fitch calls this trend a risk. However, the presale report also notes that the seller, Redwood Residential Acquisition Corp., “assumes the repurchase responsibility for all originators other than First Republic Bank” in cases where a breach of a representation occurs and the related originator is insolvent.”
FRB has been the main originator in these deals and originated almost half the loans in this one. Unlike the other originators, which had third party due diligence done on 100% of their loans, there was due diligence done on 28% of these loans.
However, Fitch said it found in a June 2011 originator review that FRB “demonstrated at least adequate strengths in all material respects and was considered to be above average overall from an origination perspective.”
FRB loans from the problematic period between 2005 and 2008 “have significantly outperformed overall industry averages” with a delinquency rate on its securitized loans outstanding of less than 2% and losses totaling only 0.1%.
The deal, like other Sequoia deals, also contains binding arbitration provisions “that may serve to provide timely resolution to representation and warranty disputes.
“Additionally, all loans that become 120 days or more delinquent will be reviewed for breaches of representations and warranties,” Fitch said.
