A pool of 583 prime mortgages extended to healthcare professionals buying single-family homes, primarily, will raise $554.6 million in residential mortgage-backed securities (RMBS) for Sequoia Mortgage Trust's 2026-MED3 series.
The underlying pool was originated through so-called doctor loan underwriting programs. Series 2026-MED3 features the highest average loan balance, $951,309 and the highest weighted average (WA) original FICO score, 757 among the two previous 2026-MED series that have come to market this year, according to analysts at Kroll Bond Rating Agency.
Designed for borrowers in the healthcare field, doctor loans consider current earnings and down payments that might be low, high personal debt—from student loans—but that will stabilize and increase to high income levels, analysts said.
That might explain the transaction's high original loan-to-value (LTV) ratio of 98.3%, and the fact that all the underlying loans were assessed through full documentation underwriting, according to the deal's collateral summary from KBRA. The loans were originated to purchase single-family, owner-occupied homes, primarily, the rating agency said.
SEMT series 2026-MED3 will issue a series of A1 senior exchangeable notes, plus A2 senior notes; plus mezzanine notes and three subordinate tranches of notes, according to KBRA.
The three senior A1 notes are expected to pay coupons of 6.78%, while the A-1A1 and A-1B1 tranches will pay coupons of 6.28%, and the A-1A2 and A-1B2 tranches will pay coupons of 6.03%, KBRA said. After that position in the waterfall, the A2 through B3 tranches will pay coupons of 6.78%, the rating agency said.
A closing is expected for November 30, and the notes have a final maturity with December 2056, the rating agency said. Wells Fargo Securities is the transaction's sole bookrunner, KBRA analysts said.
2026-MED3's borrowers have a non-zero, weighted average annual income of $487,518, with liquid reserves of $187,393, the rating agency. The loans have a debt-to-income (DTI) ratio of 35.7%, KBRA said.
KBRA assigns a rating of AAA to the A1 notes; AA+ to the A2 notes; A to the M1 notes; and M2, B1 and B2 receive ratings of BBB, BB and B, respectively.
