Redwood Trust's latest residential mortgage securitization, Sequoia Mortgage Trust 2015-3, is backed by a slightly larger percentage of loans that fall outside of new ability-to-repay rules.
Twenty-six loans, or 6% of the pool, do not meet the criteria for qualified mortgages that provide underwriters with a legal safe harbor.
That's up from 19 loans, or 3.7% of the pool back in its previous transaction, SEMT 2015-2.
Kroll Bond Ratings Agency stated in the presale report that the number of non-QM loans is also higher than any previous transaction it has rated, which has ranged between 0.6% and 3.7%.
Approximately 92% of the mortgages in SEMT 2015-3 fall under the scope of the QM rule, with 86% designated as QM.
Because a larger portion of loans backing this latest deal are at greater risk of litigation-related losses, Kroll has increased its expected loss for the AAA rated tranches by approximately 1 basis point.
However, increasing the number of non-QM loans in the pool has done little to shift the credit dynamics of the pool; it exhibits the same strong borrower profile and low leverage similar to the issuer's previous RMBS. The 30-year, fixed-rate mortgages have a weighted average FICO score of 772 and a weighted average loan-to-value ratio of 66.5%.
Kroll noted in the presale that there have been "minimal, if any" delinquencies on the mortgages backing SEMT transactions issued since 2010. "Redwood is incentivized to maintain its focus on loan quality as it retains an interest in the securitization through its ownership of subordinate securities," stated the presale.
Kroll assigned preliminary AAA ratings to the senior notes.