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News about commercial and residential mortgage-backed securities. Stories about ratings actions and changes to servicer ratings. Studies and reports about the performance of securitizations and problem vintages and classes. Subprime, Alt-A, home equity and j u m b o analysis.

Closer Look at Recent Private-Label RMBS

S&P comments on Sequoia Trust deal

April 28, 2010 (updated 1:58 p.m.)

By staff

One of the big three ratings agencies has weighed in on the first private-label issuance in two years. The deal is loaded with interest-only loans and California properties.

Standard & Poor's Ratings Services issued an opinion on Sequoia Mortgage Trust 2010-H1. The issuance was disclosed in a public filing earlier this month.

The transaction, comprised of 255 hybrid jumbo mortgages for $238 million that were originated by CitiMortgage Inc., was the first new issuance of non-agency residential mortgage-backed securities since 2008, according to the American Securitization Forum.

S&P said that it chose to comment on the Sequoia deal -- even though it didn't rate the RMBS -- because it "is important to the marketplace."

Among the transaction's strengths is that none of the loans have been delinquent or modified. On a weighted-average basis, credit scores are 768, original loan-to-values are 56 percent and original combined LTVs are less than 60 percent. More than one-quarter of the loans were closed with a simultaneous second.

The owner-occupancy share is 96 percent, and more than three-quarters of the loans are rate-term refinances. Almost three-quarters have 10-year interest-only periods, while nearly half are secured by California properties.

"If 33 average-sized loans or the 19 largest loans in the pool were to default at a 50 percent recovery (the weighted-average original LTV ratio is 56.57 percent), we estimate that either scenario would result in the complete write-down of all the subordinate classes, which provide 6.50 percent credit enhancement to the senior class," S&P said. "If mortgage rates rise, property values remain flat, and the extension of credit is limited, we believe borrowers may face difficulties refinancing."

Redwood Trust Inc. confirmed in a news release today that the deal closed. Redwood noted that the loans were orignated in 2009, while the deal was sponsored by its subsidiary RWT Holdings Inc.

"This transaction has broken the ice in the private mortgage securitization market, which has been essentially frozen since 2008," Brett Nicholas, Redwood's chief investment officer and co-chief operating officer, said in the statement, cautioning that "there is still more to do to fully reopen this market."

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