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September 15, 2017  

Redwood, Fitch Back On Speaking Terms

Redwood Trust and Fitch are patching up their relationship.

Redwood commissioned Fitch’s ratings for every one of its jumbo-mortgage bond issues from 2011 to February 2015 — a run encompassing 25 deals totaling $9.9 billion. But the assignments stopped there, as the operations butted heads over a change in the cashflows for subsequent offerings.

Indeed, for the 12 mortgage-bond transactions totaling $4.3 billion that Redwood has completed since then, all rating assignments have gone to Moody’s and Kroll, according to Asset-Backed Alert’s ABS Database.

Now comes word that officials from Redwood and Fitch have spoken in recent weeks about how they might resolve their differences. Sources characterized the discussions as amicable and constructive, but not quite settled. “Fitch and Redwood are speaking regularly, but certain technical issues remain that Redwood does not encounter with Moody’s and Kroll,” one industry participant said.

At issue is an adjustment by Redwood in which servicers for its collateral mortgages stop advancing principal and interest on accounts more than 120 days past due. In a June 2015 report, Fitch pointed out that while the move could preserve cash for senior bondholders during times of stress, it also could reduce or cut off interest payments for extended periods with each step down the capital structure. The result would be higher subordination requirements.

By then, Redwood already had made the switch to Moody’s and Kroll. The lender argues that its deals are backed by “super-prime” loans, and have experienced no losses.

The discussions with Fitch come after the Mill Valley, Calif., REIT received approval on May 1 to begin using a new SEC-registered issuing trust, as opposed to a Rule-144A vehicle it has tapped in recent years. The thought is that having Fitch on board might help build the investor base for public offerings.

S&P and DBRS also have rated Redwood’s jumbo-mortgage paper from time to time, but have been absent in the past few years. Redwood has completed six mortgage-bond offerings totaling $2.2 billion so far in 2017 — more than any other issuer.