When Redwood Trust [stock RWT][/stock] launched it’s latest residential mortgage-backed securitization vehicle, HousingWire reporter Jon Prior noted the absence of Standard & Poor’s from the pool of credit ratings agencies.
Moody’s Investors Service [stock MCO][/stock], after all, had rejoined the party after a much-aired disagreement of the concentration risk of the earlier deals.
“I wonder what happened and when will S&P re-join the fray,” Prior said to me.
Today’s filing with the Securities and Exchange Commission offers a brief explanation.
“With respect to S&P, the sponsor subsequently terminated its engagement letter because the sponsor disagreed with S&P’s preliminary assessment of the risks attributable to the mortgage loans,” the filing states.
“S&P’s preliminary assessment of the risks attributable to the mortgage loans contributed to a preliminary determination by S&P that the initial subordination level needed to support any offered certificates rated in the highest rating category would be approximately 7.5%,” it continued.
Fitch granted the senior tranche AAA based on credit enhancement of 7.3%. This gave an idea of how close Redwood is to the S&P idea of what earns AAA. But more importantly it shows how little either firm is willing to bend.
A breakdown of the ratings are below.
| Class | Fitch, Inc. | Kroll Bond Rating Agency, Inc. |
Moody’s Investors Service |
| A-1 | AAAsf | AAA(sf) | Aaa(sf) |
| A-2 | AAAsf | AAA(sf) | Aaa(sf) |
| A-IO1 | AAAsf | AAA(sf) | Aaa(sf) |
| A-IO2 | AAAsf | AAA(sf) | Aaa(sf) |
| B-1 | AAsf | NR | NR |
| B-2 | Asf | NR | NR |
| B-3 | BBBsf | NR | NR |
