Monday, April 26, 2010

New Offering: Bullet Proof Mortgage Backed Securities

by Calculated Risk on 4/26/2010 01:45:00 PM

There was an article on Bloomberg last week about "the first new-mortgage securities without government-backed guarantees in more than two years": Redwood, Citigroup End Two-Year Mortgage-Bond Drought (ht Brian)

My reaction was that these will be all low LTV mortgages with stellar credit ratings. I guessed the mortgages were essentially "bullet proof" ... Sure enough, here is the SEC filing: Sequoia Mortgage Trust 2010-H1 (ht Ramsey Su)

The details of the mortgages and the borrowers start on page 16. This is for 255 mortgages with an aggregate principal balance of $238 million. The weighted FICO score is 768, and the average Loan-to-Value is 56%.

Most are just refis of existing mortgage on owner occupied properties. There are 52 purchase mortgage with an average of just over 30% down.

This deal will close this week. Ramsey is concerned the media will hype this transaction. He points out that the sponsors cherry picked the mortgages and he wrote "these are the crème de la crème of mortgages". In addition the sponsors are taking the first loss positions:

"The sponsor (or affiliates of the sponsor) will initially retain the following certificates: (i) all of the Non-Offered Certificates, representing 6.50% of the original principal balance of the securitization, and (ii) 5% of the original principal balance of Offered Certificates."
There are plenty of details - heck, 22 of the borrowers make over $100,000 per month (yes, per month).

This is as close to bulletproof as it gets.