This isn't the kind of non-qualified mortgage securitization that investors have been clamoring for.

Redwood Trust's first RMBS of 2015, Sequoia Mortgage Trust 2015-1, is backed by a pool of 478 30-year, fixed-rate residential mortgages with a balance of $338.7 million.

Kroll Bond Ratings and Fitch Ratings have assigned AAA ratings to the senior notes, which benefit from credit enhancement of 15%. JPMorgan is the underwriter.

The loans backing the deal are of stellar quality, even if four of them do not qualify for safe harbor status under new rules designed to ensure that borrowers can afford them. The borrowers have a weighted average credit score of 769 and significant equity in the loans. The weighted average loan-to-value ratio is 69.9%, which provides substantial protection against the risk of home price declines.

Just four mortgages, or 0.8% of the pool, fall outside of qualified mortgage guidelines and are therefore at greater risk of litigation-related losses. But they are just barely outside the guidelines. One has a debt-to-income ratio in excess of 43% and the other three have "minor" exceptions to documentation requirements, according to Fitch.

Ratings agencies say that there is strong interest on the part of yield-hungry investors for deals backed exclusively by non-QM loans, if there were lenders willing to underwrite them.

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. There are minimal, if any, delinquencies on the mortgages backing the previous SEMT transactions issued since 2010, according to Kroll.

"Redwood is incentivized to maintain its focus on loan quality as it retains an interest in the securitization through its ownership of subordinate securities," Kroll states in its presale report.

Redwood precrisis deals haven't fared as well. The issuer placed nine securitizations during 2005-2007. These securitizations feature some key differences from the 2010-2012 vintage deals, including lower credit scores and higher LTVs, sometimes in excess of 80%. While some of the deals have outperformed many crisis-vintage prime pools, Kroll noted in the presale that "defaults and losses have been elevated, particularly among the 2007 vintage RMBS."

Nearly half of the loans backing the 2015-1 pool are originated by First Republic, Homestreet Bank and Flagstar Bank.

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