Redwood Trust Inc. on Wednesday began marketing the
Not surprisingly, given how standoffish investors have recently been about mortgage credit risk, the underlying loan pool is by most measures pristine.
The mortgages have an average combined loan-to-value ratio of 60% (at a time when nearly one in four home loans in the United States is underwater, according to First American CoreLogic); average credit score of 768 (on a scale of 300 to 850) and an average debt-to-income ratio of 27.32% (well below the maximum 41% permitted these days by private mortgage insurers).
The borrowers have an average monthly income of about $54,000, and 72% of the loans have documentation for at least two years of income and assets. Income and employment were verified for all the mortgages.
On average, the loans are eight months old. That may not sound "new," but other residential mortgage-backed securities issued since 2008 contained loans with seven or eight years' seasoning.
"What's it going to take to bring the nonagency RMBS market back? It's not about yield; it's about confidence," David Hurt, a senior vice president at First American CoreLogic, said during a presentation in New York on Wednesday.
The loans in Redwood's deal do, however, have some features associated with the bubble years. Seventy-three percent of them let the borrower pay interest only for the first 10 years.
And on all the loans, the interest rates are fixed only for the first five years, after which they will adjust annually.
Citigroup Inc. originated and services the mortgages and is underwriting the bonds for Redwood.
With an average balance of $932,700, the loans are firmly in the "jumbo" category (too big to be purchased or guaranteed by Fannie Mae, Freddie Mac or the Federal Housing Administration.)
"Today's transaction signals that the private RMBS market is beginning to return, but it does not signal that RMBS has returned," Tom Deutsch, the executive director of the American Securitization Forum trade group, said in a press release. "The market is extremely fragile and we need to be very careful, especially as policymakers consider new regulation."
