SEC Company Response from REDWOOD TRUST INC (RWT, RWTN, RWTO, RWTP, RWTQ, RWT-PA) (CIK 0000930236) (RWT) — May 16, 2007
REDWOOD TRUST INC (RWT, RWTN, RWTO, RWTP, RWTQ, RWT-PA) (CIK 0000930236)
Date: May 16, 2007 · CIK: 0000930236 · Accession: 0001144204-07-026455
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-13759
Letter
Division of Corporation Finance Securities and Exchange Commission Redwood Trust, Inc. Form 10-K for the year ended December 31, Filed February 20, 2007 File No. 001-13759
Dear Mr. Gordon:
We are responding to your comments in your letter of May 2, 2007 with respect to the above-referenced Annual Report on Form 10-K. For your convenience, your comments are set forth below in italics before each response.
Form 10-K for the year ended December 31, 2006
Item 1A. Risk Factors page 6
We have exposure under representations and warranties…. page
1.
We note from your disclosure that you may be obligated to repurchase certain loans from securitization entities. Provide us with more detail regarding your obligation to repurchase loans including your obligation to repurchase loans that go into default, the time frame for this obligation (e.g., loans that go into default in the first 90 days after origination), and a description of the breaches in representations and warranties that would allow the purchaser of the loans to require the company to repurchase the loans. Please tell us whether or not you have established a reserve to account for anticipated losses reasonably estimated to occur over the life of such obligations, and if so, the amount of the reserve at December 31, 2006. Additionally, tell us the total amount of loans you have securitized that you may be required to repurchase, and tell us the dollar amount of loans you have been required to repurchase for each of the past five years, and the dollar amount of losses recognized in each of the past five years related to the loans repurchased.
May 15,
Mr. Daniel L. Gordon
Page Two
We do not originate residential loans. We purchase loans from originators and transfer the mortgage loans to a securitization entity. At the time of transfer, we make certain representations and warranties concerning those loans. A breach of these representations and warranties that materially and adversely affects the value of, or the interest of the securitization entity in, a mortgage loan would obligate us to repurchase the loan from the securitization entity. The representations and warranties generally address facts and conditions in effect as of the date of transfer to the securitization entity and not future events such as future payment defaults. We obtain representations and warranties from the counterparties from which we acquire the mortgage loans that generally parallel those given to the securitization entities. Thus a breach of a representation and warranty that would obligate us to repurchase a mortgage loan from a securitization entity would give rise to an obligation of the counterparty to repurchase the loan from us. A description of the representations and warranties we provide to securitization entities is set forth in the attached Appendix.
Our agreements with counterparties from which we acquire mortgage loans usually require the counterparty to repurchase any mortgage loan that has a payment default on the first or second payment due after origination or, in some cases, after the date on which we purchase the loan from the counterparty. We assign our rights under the agreements with the counterparties to the securitization entity and thus the rights arising upon an early payment default may be exercised by the securitization entity on behalf of its investors. We do not give any independent early payment default undertakings to the securitization entities, however, so we have no exposure to those defaults.
At December 31, 2006, we did not reasonably expect to incur any mortgage loan repurchase losses over the life of the repurchase obligations described above and thus we did not establish a reserve at that date to account for repurchase losses. During the five-year period ended December 31, 2006, we were not required to repurchase any loans from securitization entities and thus incurred no losses from repurchased loans.
2.
In addition, please include in future filings an accounting policy related to your potential obligation to repurchase certain loans from securitization transactions. This policy should be included in your critical accounting policies and in the summary of significant accounting policies in your footnotes to your financial statements. Also, please provide us with your proposed disclosure in your response.
May 15,
Mr. Daniel L. Gordon
Page Three
We have included the following disclosure in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, which we filed on May 9, 2007, and will include similar disclosure in our future filings:
“We do not maintain a loan repurchase reserve, as any risk of loss due to loan repurchases (i.e., due to breach of representations) would normally be covered by recourse to the companies from whom we acquired the loans.”
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, page 22
3.
You disclose that you own $518 million in subprime investment-grade securities at year-end 2006. Please tell us the amount of defaults that you have incurred in the past two years related to subprime loans and provide us with the allowance that you have recorded as of December 31, 2006. Also, provide us with the amount of subprime loans sold in securitizations that you could be required to repurchase.
We own third party subprime investment grade securities backed by subprime loan collateral. Therefore we do not own or report under GAAP these subprime loans on our consolidated balance sheet and consequently did not provide for an allowance for loan losses as of December 31, 2006. We are affected by future losses for the entire pool of loan collateral to the extent attributable to our investment grade securities in accordance with the loss priority assigned to those securities. We have never incurred a loss on an investment grade security and therefore have not recorded any credit reserves.
We have never owned subprime loans and have sold no subprime loans in securitizations and therefore we have no subprime loans that we may be required to repurchase.
* * * *
May 15,
Mr. Daniel L. Gordon
Page Four
As you have requested, this will confirm that:
·
Redwood Trust is responsible for the adequacy and accuracy of the disclosure in the above-referenced filing;
·
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
·
Redwood Trust may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Sincerely
yours,
/s/
Martin S. Hughes
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
VIA
FACSIMILE TRANSMISSION - 202-772-9210
Mr.
Daniel L. Gordon
Branch
Chief
Division
of Corporation Finance
Securities
and Exchange Commission
100
F Street, N.E.
Washington,
D.C. 20549
May
15,
2007
Re:
Redwood
Trust, Inc.
Form
10-K for the year ended December 31,
2006
Filed
February 20, 2007
File
No. 001-13759
Dear
Mr.
Gordon:
We
are
responding to your comments in your letter of May 2, 2007 with respect to
the
above-referenced Annual Report on Form 10-K. For your convenience, your comments
are set forth below in italics before each response.
Form
10-K for the year ended December 31, 2006
Item
1A. Risk Factors page 6
We
have exposure under representations and warranties…. page
10
1.
We
note from your disclosure that you may be obligated to repurchase
certain
loans from securitization entities. Provide us with more detail regarding
your obligation to repurchase loans including your obligation to
repurchase loans that go into default, the time frame for this obligation
(e.g., loans that go into default in the first 90 days after origination),
and a description of the breaches in representations and warranties
that
would allow the purchaser of the loans to require the company to
repurchase the loans. Please
tell us whether or not you have established a reserve to account
for
anticipated losses reasonably estimated to occur over the life of
such
obligations, and if so, the amount of the reserve at December 31,
2006.
Additionally, tell us the total amount of loans you have securitized
that
you may be required to repurchase, and tell us the dollar amount
of loans
you have been required to repurchase for each of the past five years,
and
the dollar amount of losses recognized in each of the past five years
related to the loans repurchased.
May
15,
2007
Mr.
Daniel L. Gordon
Page
Two
We
do not
originate residential loans. We purchase loans from originators and transfer
the
mortgage loans to a securitization entity. At the time of transfer, we make
certain representations and warranties concerning those loans. A breach of
these
representations and warranties that materially and adversely affects the
value
of, or the interest of the securitization entity in, a mortgage loan would
obligate us to repurchase the loan from the securitization entity. The
representations and warranties generally address facts and conditions in
effect
as of the date of transfer to the securitization entity and not future events
such as future payment defaults. We obtain representations and warranties
from
the counterparties from which we acquire the mortgage loans that generally
parallel those given to the securitization entities. Thus a breach of a
representation and warranty that would obligate us to repurchase a mortgage
loan
from a securitization entity would give rise to an obligation of the
counterparty to repurchase the loan from us. A description of the
representations and warranties we provide to securitization entities is set
forth in the attached Appendix.
Our
agreements with counterparties from which we acquire mortgage loans usually
require the counterparty to repurchase any mortgage loan that has a payment
default on the first or second payment due after origination or, in some
cases,
after the date on which we purchase the loan from the counterparty. We assign
our rights under the agreements with the counterparties to the securitization
entity and thus the rights arising upon an early payment default may be
exercised by the securitization entity on behalf of its investors. We do
not
give any independent early payment default undertakings to the securitization
entities, however, so we have no exposure to those defaults.
At
December 31, 2006, we did not reasonably expect to incur any mortgage loan
repurchase losses over the life of the repurchase obligations described above
and thus we did not establish a reserve at that date to account for repurchase
losses. During the five-year period ended December 31, 2006, we were not
required to repurchase any loans from securitization entities and thus incurred
no losses from repurchased loans.
2.
In
addition, please include in future filings an accounting policy related
to
your potential obligation to repurchase certain loans from securitization
transactions. This policy should be included in your critical accounting
policies and in the summary of significant accounting policies in
your
footnotes to your financial statements. Also, please provide us with
your
proposed disclosure in your response.
May
15,
2007
Mr.
Daniel L. Gordon
Page
Three
We
have
included the following disclosure in our Quarterly Report on Form 10-Q for
the
quarter ended March 31, 2007, which we filed on May 9, 2007, and will include
similar disclosure in our future filings:
“We
do
not maintain a loan repurchase reserve, as any risk of loss due to loan
repurchases (i.e., due to breach of representations) would normally be covered
by recourse to the companies from whom we acquired the loans.”
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, page 22
3.
You
disclose that you own $518 million in subprime investment-grade securities
at year-end 2006. Please tell us the amount of defaults that you
have
incurred in the past two years related to subprime loans and provide
us
with the allowance that you have recorded as of December 31, 2006.
Also,
provide us with the amount of subprime loans sold in securitizations
that
you could be required to repurchase.
We
own
third party subprime investment grade securities backed by subprime loan
collateral. Therefore we do not own or report under GAAP these subprime loans
on
our consolidated balance sheet and consequently did not provide for an allowance
for loan losses as of December 31, 2006. We are affected by future losses
for
the entire pool of loan collateral to the extent attributable to our investment
grade securities in accordance with the loss priority assigned to those
securities. We have never incurred a loss on an investment grade security
and
therefore have not recorded any credit reserves.
We
have
never owned subprime loans and have sold no subprime loans in securitizations
and therefore we have no subprime loans that we may be required to repurchase.
*
* *
*
May
15,
2007
Mr.
Daniel L. Gordon
Page
Four
As
you
have requested, this will confirm that:
·
Redwood
Trust is responsible for the adequacy and accuracy of the disclosure
in
the above-referenced filing;
·
staff
comments or changes to disclosure in response to staff comments do
not
foreclose the Commission from taking any action with respect to the
filing; and
·
Redwood
Trust may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
Sincerely
yours,
/s/
Martin S. Hughes
Martin
S. Hughes
Chief
Financial Officer
APPENDIX
Representations
by Sellers; Repurchases
In
the
mortgage loan purchase and sale agreement, pursuant to which the depositor
will
purchase the mortgage loans from the seller, the seller will make certain
representations and warranties to the depositor concerning the mortgage loans.
The trustee will be assigned all right, title and interest in the mortgage
loan
purchase and sale agreement insofar as they relate to such representations
and
warranties made by the seller. The seller will be obligated to repurchase
(or, within the period provided in the Agreement, to substitute a replacement
mortgage loan for) any mortgage loan as to which there exists an uncured
breach
of certain of its representations and warranties, which breach materially
and
adversely affects the value of, or interest of the securityholders in, the
mortgage loan.
These
representations and warranties will include the following as to each mortgage
loan, among others, unless otherwise specified in the prospectus
supplement:
·
The
information set forth in the mortgage loan schedule is true and correct
in
all material respects and the information provided to the rating
agencies,
including the loan level detail, is true and correct according to
the
rating agency requirements;
·
Immediately
prior to the sale of the mortgage loan pursuant to the mortgage loan
purchase and sale agreement, the seller was a sole owner and holder
of the
mortgage loan. The mortgage loan is not assigned or pledged, and the
seller has good and marketable title thereto, and has full right
to
transfer and sell the mortgage loan to the depositor free and clear
of any
encumbrance, equity, lien, pledge, charge, claim or security interest
not
specifically set forth in the related mortgage loan schedule and
has full
right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign the mortgage
loan
pursuant to the terms of the mortgage loan purchase and sale
agreement;
·
The
mortgage is a valid, existing and enforceable first lien on the mortgaged
property, including all improvements on the mortgaged property, subject
only to (i) the lien of current real property taxes and assessments
not
yet due and payable; (ii) covenants, conditions and restrictions,
rights
of way, easements and other matters of public record as of the date
of
recording that are acceptable to mortgage lending institutions generally
and specifically referred to in lender’s title insurance policy delivered
to the originator of the mortgage loan and that do not adversely
affect
the appraised value (as evidenced by an appraisal referred to in
such
definition) of the mortgaged property; and (iii) other matters to
which
like properties are commonly subject that do not materially interfere
with
the benefits of the security intended to be provided by the mortgage
or
the use, enjoyment, value or marketability of the related mortgage
property.
·
As
of the closing date, there is no default, breach, violation or event
of
acceleration existing under the mortgage or the mortgage note and
no event
which, with the passage of time or with notice and the expiration
of any
grace or cure period, would constitute a default, breach, violation
or
event permitting acceleration, and the seller and its affiliates
have not
waived any default, breach, violation or event permitting
acceleration;
·
No
fraud, error, omission, misrepresentation, negligence or similar
occurrence with respect to the mortgage loan has taken place on the
part
of the seller or any originator or servicer or the mortgager or on
the
part of any other party involved in the origination of the mortgage
loan;
·
Each
mortgage loan secured by a first priority mortgage is covered by
an ALTA
lender’s title insurance policy acceptable to an Agency, issued by a title
insurer acceptable to an Agency and qualified to do business in the
jurisdiction where the mortgaged property is
located;
·
All
payments due on each mortgage loan have been made and no mortgage
loan was
delinquent months (i.e., was more than 30 days past due) more than
once in
the preceding 12 months and any such delinquency did not exceed one
payment;
·
There
are no delinquent assessments or taxes outstanding against any mortgaged
property;
·
There
is no offset, defense, counterclaim to any mortgage note, except
as stated
in the mortgage loan purchase and sale
agreement;
·
Each
mortgaged property is free of material damage and in good
repair;
·
Each
mortgage loan at the time of origination compiled in all material
respects
with applicable state and federal laws i