Sequoia Mortgage Trust preps $448 million MBS, tapping distributed ledger technology for reporting

Sequoia Mortgage Trust is preparing to issue $448.8 million in mortgage-backed securities (MBS) collateralized by a mortgage portfolio of 497 prime mortgage loans.

In a first for a Fitch-rated transaction, Sequoia includes a distributed ledger agent (DLA) to enhance reporting processes for loan-backed pools. Liquid Mortgage, the blockchain-based financial technology company, will use distributed ledger technology (DLT) to provide more timely updates on principal and interest payments, according to Fitch Ratings.

The loans underpinning the deal were extended to borrowers with strong credit profiles and who are mostly using their homes as the primary residence, Fitch said.

Redwood Residential Acquisition acquired the pool of prime fixed-rate mortgages (FRMs) from a variety of mortgage originators. Prime Lending, CrossCountry Mortgage and Fairway are the mortgage originators. Prime Lending accounts for the largest portion.

Wells Fargo Securities is the lead underwriter on the transaction, according to Fitch Ratings.

Seasoned at an average of only one month, the underlying loans have an average balance of $903,175. original weighted average (WA) loan-to-value of 67.5 %, and an original debt-to-income ratio of 32.3%. The WA FICO score is 773.

A little more than a third (37%) of the pool is in California with San Francisco accounting for the largest MSA at 12.2%. Los Angeles follows with 10.6%. Chicago rounds out the top three MSA markets at 7.2%, which makes a total of 30% of the pool.

The Golden State represented the largest state in SEMT 2021-4 and SEMT 2021-5, but SEMT 2021-6 is the highest concentration for the year at this point.

Almost 100% of the pool – 94.5% consist of loans for primary residences, while the remainder are for second homes. All of the loans are designated as a qualified mortgage (QM) with 91% originated from retail.

Fitch noted that the home price values of this pool are 10.3% above a long-term sustainable level due to low inventory, new buyers and low mortgage rates.

These conditions have resulted in home price increases over the past year.

Fitch expects to assign ‘AAA’ ratings to the $95.39 million A-9b class; $228.92 million A-12b class; $57.23 million to the A-18b class; and $49.38 million to the A-18b class. Fitch will likely rate the $7.18 million B-1 class as AA-sf, and rate the $4.49 million B-2 class as ‘A-’ .

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