Fitch Rates Sequoia Mortgage Trust 2013-12

Business Wire

NEW YORK--(BUSINESS WIRE)--

Fitch Ratings assigns the following ratings to Sequoia Mortgage Trust 2013-12, mortgage pass-through certificates, series 2013-12 (SEMT 2013-12):

--$297,848,000 class A-1 exchangeable certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-2 certificate 'AAAsf'; Outlook Stable;

--$59,570,000 class A-3 certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-6 exchangeable certificate 'AAAsf'; Outlook Stable;

--$148,924,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;

--$148,924,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;

--$148,924,000 class A-9 exchangeable certificate 'AAAsf'; Outlook Stable;

--$148,924,000 class A-10 exchangeable certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-11 exchangeable certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-12 exchangeable certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-13 exchangeable certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-14 exchangeable certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-IO notional certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-IO1 notional certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-IO2 notional certificate 'AAAsf'; Outlook Stable;

--$297,848,000 class A-IO3 notional certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-IO4 notional certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-IO5 notional certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-IO6 notional certificate 'AAAsf'; Outlook Stable;

--$238,278,000 class A-IO7 notional certificate 'AAAsf'; Outlook Stable;

--$9,587,000 class B-1 certificate 'AAsf'; Outlook Stable;

--$6,337,000 class B-2 certificate 'Asf'; Outlook Stable;

--$4,387,000 class B-3 certificate 'BBBsf'; Outlook Stable;

--$3,412,000 non-offered class B-4 certificate 'BBsf'; Outlook Stable.

The 'AAAsf' rating on the senior certificates reflects the 8.35% subordination provided by the 2.95% class B-1, 1.95% class B-2, 1.35% class B-3, 1.05% non-offered class B-4 and 1.05% non-offered class B-5. The $3,413,226 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 2013-12 will be Redwood Residential Acquisition Corporation's 12th transaction of prime residential mortgages in 2013. The certificates are supported by a pool of prime fixed rate mortgage loans. All but 1.8% of the loans are fully amortizing. The aggregate pool included loans originated from First Republic Bank (18.5%) and PrimeLending (9.2%). 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 410 loans with a total balance of $324,984,227; an average balance of $792,644; a weighted average original combined loan-to-value ratio (CLTV) of 70.5%, and a weighted average coupon (WAC) of 4.7%. Rate/term and cash out refinances account for 26.7% and 8.7% of the loans, respectively. The weighted average original FICO credit score of the pool is 766. Owner-occupied properties comprise 91.8% of the loans. The states that represent the largest geographic concentration are California (40%), Texas (7.8%) and New York (7.1%).

KEY RATING DRIVERS

Sound Quality With Slight Drift: Sequoia transactions continue to comprise high-quality collateral, but have been moving away from the high-end of the credit spectrum. Recent deals exhibit slightly higher LTV ratios with increasing concentrations in the higher LTV bands partially due to rising percentages of purchase loans. This transaction also has a slightly lower weighted average credit score of 766, roughly six points below the post-crisis Sequoia average. Despite the drift, the pool has strong credit attributes with Fitch's loss expectations taking into account the lower credit score and higher LTV.

Increasing Number of Originators: The number of lenders in Sequoia transactions has consistently increased since 2011 from two to 78 for SEMT 2013-12. As with SEMT 2013-12 and other recent Sequoia transactions, the majority of the loans were originated by lenders with limited non-agency performance history. This risk is mitigated by the 100% third-party diligence conducted on these loans with immaterial findings as well as an upward adjustment made to Fitch's loss expectations to account for potential operational risk.

Geographically Diverse Pool: As with most Sequoia transactions, the collateral pool is geographically diverse partly due to the large number of lenders. Nearly 40% of the pool is concentrated in California, one of the lowest percentages of post-crisis 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, all loans that become 120 days or more delinquent will be automatically reviewed for breaches of representations and warranties.

RATING SENSITIVITIES

After Fitch determines credit ratings through a rating stress scenario analysis, additional sensitivity analyses are considered. The analyses provide a defined stress sensitivity to demonstrate how the ratings would react to steeper market value declines (MVDs) than that assumed at issuance as well as a defined sensitivity that demonstrates the stress assumptions required to reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.

Fitch's defined stress sensitivity determined 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 16.8% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.

The defined rating sensitivities determine the stresses to the MVD that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For this transaction, Fitch determined that the MVD would need to be approximately 15% greater than Fitch's current estimate to result in a full rating category downgrade of the rated classes in the future. Further details of Fitch's rating stress scenarios and rating sensitivity analysis are provided in the new issue report.

MODEL USAGE

Fitch analyzed the credit characteristics of the underlying collateral to determine base case and rating stress loss expectations using its prime residential mortgage loss model, which is fully described in its August 2013 criteria report, 'U.S. RMBS Loan Loss Model Criteria.' In addition, Fitch considered the results relative to the previous version of the mortgage loss model, as described in its August 2012 criteria report, 'U.S. RMBS Loan Loss Model Criteria - Effective August 10, 2012 to Aug. 7, 2013.'

Also, Fitch simulated transaction cash flow scenarios using various cash flow modeling assumptions, as described in its April 2013 criteria report, 'U.S. RMBS Cash Flow Analysis Criteria.'

Additional detail on the transaction is described in the new issue report 'Sequoia Mortgage Trust 2013-12'.

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. 9, 2013;

--'U.S. RMBS Loan Loss Model Criteria - Effective August 10, 2012 to Aug. 7, 2013', 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. 9, 2013.

Applicable Criteria and Related Research:

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

U.S. RMBS Surveillance Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720170

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

Counterparty Criteria for Structured Finance and Covered Bonds

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707155

U.S. RMBS Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=713083

U.S. RMBS Loan Loss Model Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715454

U.S. RMBS Loan Loss Model Criteria -- Effective August 10, 2012 to August 7, 2013

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685646

EMEA RMBS Cash Flow Analysis Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=709916

U.S. RMBS Representations and Warranties Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=711402

U.S. RMBS Originator Review and Third-Party Due Diligence Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=808810

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Contact:
Fitch Ratings
Primary Analyst
John Um
Associate Director
+1-212-908-0287
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Rachel Brach
Director
+1-212-908-0224
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
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Email: sandro.scenga@fitchratings.com

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