Redwood Trust – the only firm to publicly issue any jumbo MBS in two years – is about to come to market with its third offering.
Redwood's Sequoia Mortgage Trust 2011-2 (SEMT 2011-2) is collateralized by 473 loans with a total balance of roughly $375 million, according to a Fitch Ratings presale report released on Wednesday.
The deal is the third jumbo mortgage deal from Redwood's 'Sequoia' trust. Its last bond, Sequoia Mortgage Trust 2011-1 (SEMT 2011-1), came to market in February.
All the loans in the current transaction are prime fixed-rate mortgages from six originators, according to Fitch.
The breakdown is 80% of the loans backing the transaction were originated by two banks: First Republic Bank (FRB), which originations comprised 53% of the deal, and PHH Mortgage Corp. (PHH), which made up 27% of the transaction. The rest of the pool was originated by Wells Fargo Home Mortgage with 8% (WFHM), SunTrust Mortgage 7%, PrimeLending (PL) 4%, and Sterling Savings Bank 0.9%.
Distributions of principal and interest and loss allocations are based on a traditional senior-subordinate shifting-interest structure, Fitch said.
The issuer's last deal also used this structure, which does not allow for the timing of increased payments to subordinate classes to be accelerated if mortgage prepayments exceeded expectations. "The absence of this 'early step-down' feature will help retain subordinated credit protection for senior classes," Fitch analysts said after they rated the 2001-1 offering.
For Redwood's last deal, SEMT 2011-1, Moody's Investors Service warned that investors should consider the risk posed by the concentration of earthquake-vulnerable properties underlying the transaction. However, Moody's did not rate the transaction.
Although slightly reduced compared to SEMT 2011-1, this collateral pool also has a considerable geographic concentration risk in California, specifically in the San Francisco area, Fitch said. Fitch considered this risk in its analysis and applied a 1.29 times default penalty.
The rating agency also noted that roughly 5% of the pool was originated by PL and Sterling, which are smaller lenders with limited non-agency performance history. Fitch said that all of these loans were reviewed by a third-party due diligence firm that had immaterial findings.
