Redwood Trust Inc. is about to broaden the scope of its Sequoia Mortgage Trust residential mortgage-backed securitization platform.
In what has become its most active year for prime jumbo RMBS deals since 2013, the mortgage REIT has constructed a deal backed, to a large extent, by loans acquired under its Redwood Choice expanded credit program.
Depositor Sequoia Residential Funding Inc. filed an asset-backed securitizer report containing a third-party due diligence review of Sequoia Mortgage Trust 2017-CH1, and Kroll Bond Rating Agency released a presale report for a deal it valued at nearly $316.5 million.
The mortgage REIT describes Redwood Choice, which it launched in April 2016, as a prime program consisting of fully documented loans, but with credit parameters outside of its traditional jumbo loan purchase guidelines.
Those parameters, as Kroll Bond Rating Agency outlined in its presale report, encompass borrower FICO scores as low as 661, as well as tolerance for prior late mortgage payments and certain other credit events. The Choice program includes loans that fall both within and outside of the qualified mortgage, or QM, rule. The non-QM version of the Choice program offers eligibility for borrowers with debt-to-income ratios of up to almost 50% for fixed-rate loans.
As outlined by Kroll Bond Rating Agency, 48.5% of the Sequoia Mortage Trust 2017-CH1 collateral pool's aggregate balance consisted of QM Choice program loans. Non-QM Choice program loans account for 8.7% of the pool.
The mortgage REIT acquired the remainder of the collateral through its more traditional Redwood Select prime jumbo program, Kroll Bond Rating Agency reported, with 20.7% of the pool consisting of non-QM Select loans and 6.9% classified as QM Select loans. Requirements for Redwood Select borrowers generally include FICOs of 700 or higher, no late mortgage payments in the past 24 months and no prior credit events. Another 15.2% of the pool consists of loans acquired through the Select 90 QM program, which allows for loan-to-value ratios of up to 90% so long as borrowers hold minimum FICO scores of 720, among certain other requirements.
The average original FICO scores and LTVs for the Choice QM loans in the pool were 722 and 75.5%, respectively, according to Kroll Bond Rating Agency. For the Select QM and non-QM buckets, the average original FICO scores topped 770 and the average original LTVs were 57.3% and 66.9%, respectively. All told, the pool includes 421 loans produced by more than 100 originators, the largest of which is Hilltop Holdings Inc.'s PrimeLending a PlainsCapital Co.
Kroll Bond Rating Agency said it believes the various loan programs present in the pool "are consistent or generally tighter than recent securitizations containing subsets of collateral with similar attributes." It made comparisons between certain portions of the Sequoia Mortgage Trust 2017-CH1 pool and subsets of transactions conducted earlier in 2017 by Caliber Home Loans Inc. and Mariner Investment Group LLC's GMRF Mortgage Acquisition Co. LLC.
"While it is too early to fully assess the historical performance of the Choice program, and few competing programs exist to serve as market comparables, the Choice loans are originated pursuant to the same processes and are sourced from the same seller base as the select jumbo program," the rating agency observed, noting that the postcrisis Sequoia pools had "generally exhibited stronger asset performance than the overall market."
Redwood executives had foreshadowed a securitization of Choice loans in their most recent quarterly report as they wrote of strong momentum in the program. The mortgage REIT's overall loan purchase commitments increased to $1.4 billion during the second quarter from $1.1 billion in the first quarter, fueled by a nearly 30% increase on a linked-quarter basis in Choice commitments.
"Rates and yields on Choice loans continue to be approximately 100 to 125 basis points higher than rates and yields on our Select loans," the report stated. To the extent a securitization of Choice loans was to succeed, it added, the program would have the potential "to create large credit investments for Redwood going forward."
The deal is expected to close on or about Sept. 28, according to the Kroll Bond Rating Agency presale report. It would mark the seventh Redwood RMBS deal of the 2017 vintage, equaling the number of deals it conducted through all of the previous two years.
The $355.4 million prime jumbo Sequoia Mortgage Trust 2017-6 closed on Aug. 30. Sequoia issuance peaked on a post-crisis basis in 2013 with 12 transactions.