NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Sequoia Mortgage Trust 2013-10, mortgage pass-through certificates, series 2013-10 (SEMT 2013-10):
--$371,622,000 class A-1 exchangeable certificate 'AAAsf'; Outlook
--$185,811,000 class A-2 certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-3 certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-6 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;
--$371,622,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO1 notional certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO2 notional certificate 'AAAsf'; Outlook Stable;
--$185,811,000 class A-IO3 notional certificate 'AAAsf'; Outlook Stable;
--$371,622,000 class A-IO notional certificate 'AAAsf'; Outlook Stable;
--$10,217,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$6,811,000 class B-2 certificate 'Asf'; Outlook Stable;
--$4,608,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$3,205,000 non-offered class B-4 certificate 'BBsf'; Outlook Stable.
The 'AAAsf' rating on the senior certificates reflects the 7.25% subordination provided by the 2.55% class B-1, 1.70% class B-2, 1.15% class B-3, 0.80% non-offered class B-4 and 1.05% non-offered class B-5. The $4,208,564 non-offered class B-5 certificates will not be rated by Fitch.
Fitch's ratings reflect the high quality of the underlying collateral, the clear capital structure and the high percentage of loans reviewed by third party underwriters. In addition, CitiMortgage, Inc. will act as the master servicer and Wilmington Trust will act as the Trustee for the transaction. For federal income tax purposes, elections will be made to treat the trust as one or more real estate mortgage investment conduits (REMICs).
SEMT 2013-10 will be Redwood Residential Acquisition Corporation's tenth transaction of prime residential mortgages in 2013. The certificates are supported by a pool of prime fixed rate mortgage loans. All of the loans are fully amortizing. The aggregate pool included loans originated from PrimeLending (8.5%) and WJ Bradley Mortgage Capital (7.6%). The remainder of the mortgage loans was originated by various mortgage lending institutions, each of which contributed less than 5% to the transaction.
As of the cut-off date, the aggregate pool consisted of 529 loans with a total balance of $400,671,564; an average balance of $757,413; a weighted average original combined loan-to-value ratio (CLTV) of 68.1%, and a weighted average coupon (WAC) of 3.9%. Rate/Term and cash out refinances account for 45.5% and 5.0% of the loans, respectively. The weighted average original FICO credit score of the pool is 775. Owner-occupied properties comprise 95.2% of the loans. The states that represent the largest geographic concentration are California (40.9%), Texas (9.4%) and Virginia (6.7%).
KEY RATING DRIVERS
High-Quality Mortgage Pool: The collateral pool consists of 30-year fully amortizing, fully documented FRMs to borrowers with strong credit profiles, low leverage, and substantial liquid reserves. Third-party loan-level due diligence was conducted on 99.8% of the pool, and Fitch believes the results of the review generally indicate strong underwriting controls.
Originators with Limited Performance History: The majority of the pool was originated by lenders with limited non-agency performance history. The lack of performance history is partially mitigated by the 100% third-party diligence conducted on these loans that resulted in immaterial findings. Fitch also considers the credit enhancement (CE) on this transaction sufficient to mitigate the originator risk.
Geographically Diverse Pool: The collateral pool is geographically diverse. The percentage in the top three metropolitan statistical areas (MSAs) is 23.1% and concentration in California is 40.9%, similar to recent SEMT transactions. The agency did not apply a default penalty to the pool due to the low geographic concentration risk.
Transaction Provisions Enhance Deal Framework: The representation, warranty and enforcement mechanism framework is viewed positively, as it is consistent with Fitch criteria. As in other recent Fitch-rated SEMT transactions, SEMT 2013-10 contains binding arbitration provisions that may serve to provide timely resolution to representation and warranty disputes. In addition, all loans that become 120 days or more delinquent will be reviewed for breaches of representations and warranties.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis on areas where the model projected lower home price declines than that of the overall collateral pool. The model currently projects sustainable MVDs (sMVDs) at the MSA level. For one of the top 10 regions, Fitch's sustainable home price (SHP) model does not project declines in home prices. This region is Dallas-Plano-Irving in Texas (4.3%). Fitch conducted sensitivity analysis assuming sMVDs of 10%, 15%, and 20% compared with those projected by Fitch's SHP model for this region. The sensitivity analysis indicated no impact on ratings for all bonds in each scenario.
In its analysis, Fitch considered placing a greater emphasis on recent economic performance in determining market value declines. While Fitch's current loan loss model looks to three years of historical data and one year of projections, this does not incorporate recent notable economic improvement. To reflect the more recent economic environment, a sensitivity analysis was performed using two years of historical economic data and two years of projections. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. This sensitivity analysis resulted in a base sMVD of 13.7%, slightly less than the 14.5% base sMVD projected in the current model.
Another sensitivity analysis was focused on determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 14.5% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Additional detail on the transaction is described in the new issue report 'Sequoia Mortgage Trust 2013-10'.
Additional information is available at 'www.fitchratings.com'.
In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents from the 17g5 website available on 'www.structuredfn.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria', May 24, 2013;
--'Counterparty Criteria for Structured Finance and Covered Bonds', May 13, 2013;
--'U.S. RMBS Rating Criteria', July 16, 2013;
--'U.S. RMBS Loan Loss Model Criteria', Aug. 10, 2012;
--'U.S. RMBS Cash Flow Analysis Criteria', April 19, 2013;
--'U.S. RMBS Representations and Warranties Criteria', June 24, 2013;
--'U.S. RMBS Originator Review and Third-Party Due Diligence Criteria', April 26, 2013;
--'U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria', Jan. 31, 2011;
--'U.S. RMBS Surveillance Criteria', Oct. 11, 2012.