Non-bank lender Pepper has launched a residential mortgage backed securities issue, looking to sell notes equivalent to A$700 million. The bulk of the funding (around 70 per cent) will be raised via three tranches of A1 notes, with a single A2 tranche expected to raise $99 million, or 14 per cent of the total. This will be Pepper's second combined non-conforming and prime RMBS transaction for 2018, according to a pre-sale report from Moody's Investors Service.The Pepper transaction contains Class A1-u Notes as a US$175 million. According to its amortisation schedule, these notes will amortise in full over a period of 59 months. The structure provides also 30 per cent subordination to its top rated A-class notes, and Pepper is required to service the loans to maintain interest rates on the mortgage loans, on a weighted average basis, at a minimum margin above BBSW.Looking at the risks, Moody's pointed out that the portfolio has a relatively high weighted-average scheduled loan to value ratio of 72.2 per cent, and 35.2 per cent of the loans have a scheduled LTV ratio above 80 per cent. Other "credit challenges" - or collateral pool weakness - for this portfolio, as identified by Moody's, include observations that:•    almost 30 per cent of the mortgage loans in the portfolio were granted to borrowers with prior credit impairment (that is, default, judgment or bankruptcy); •    around 35 per cent of the loans were extended on an alternative documentation (alt doc) basis, of which 0.03 per cent were granted on the basis of low documentation (low doc); and •    the portfolio has a low weighted-average seasoning of 7.1 months, with 85.4 per cent of loans originated in the last six months.Also running this week is a new and straightforward A$500 million RMBS transaction from ME (Members Equity Bank Ltd), its second such deal for 2018. S&P Global Ratings has assigned preliminary ratings to five of the six classes of prime residential mortgage-backed securities in the transaction. The agency's pre-sale media release disclosed lenders' mortgage insurance applies to 35.6 per cent of the underlying collateral portfolio, which is entirely comprised of prime home loans originated by ME.The top two classes - both rated AAA (sf) - account for $460 million and $24 million, respectively, of the total transaction.