securitization

“Approximately 47% of the pool by unpaid principal balance (60% by loan count) had a prior credit event, including foreclosure, bankruptcy, short sale or deed in lieu of foreclosure.”

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 COLT 2016-1: Caliber Home Loans Markets First Non-Prime Mortgage Bond

From @HousingWire

Irving, Texas-based residential mortgage origination and servicing company, Caliber Home Loans, continues to move into new growth territory.

Fitch Ratings announced the first rated non-prime, post crisis private-label securitization is being marketed using Caliber mortgages as collateral.

It’s called COLT 2016-1, which means it’s the first in an intended series of residential mortgage-backed securitizations to come.

The announcement is fairly spectacular as the private mortgage bond market is largely nonexistent, though the once, largest player Redwood Trust is said to be making a comeback following a lengthy hiatus.

At any rate, according to the pre-sale report: “Fitch reviewed Caliber’s and [asset manager] Hudson’s origination and acquisition platforms and found them to have sound underwriting and operational control environments, reflecting industry improvements following the financial crisis that are expected to reduce risk related to misrepresentation and data quality.”

From BUSINESS WIRE

Fitch to Rate COLT 2016-1 Mortgage Loan Trust up to ‘Asf’; Presale Issued

NEW YORK–(BUSINESS WIRE)–

Fitch Ratings expects to rate COLT 2016-1 Mortgage Loan Trust (COLT 2016-1) as follows:

–$89,424,000 class A-1 certificates ‘Asf’; Outlook Stable;

–$89,424,000 class A-1X certificates ‘Asf’; Outlook Stable;

–$48,351,000 class A-2 certificates ‘BBBsf’; Outlook Stable;

–$48,351,000 class A-2X certificates ‘BBBsf’; Outlook Stable;

–$9,056,000 class M-1 certificates ‘BBsf’; Outlook Stable.

Fitch will not be rating the following certificates:

–$14,877,659 class M-2 certificates.

This is the first Fitch-rated RMBS transaction issued post-crisis that consists primarily of newly originated, non-prime mortgage loans. All of the mortgage loans were originated by Caliber Home Loans, Inc. (Caliber). The transaction is collateralized with 51% non-qualified (Non-QM) mortgages as defined by the Ability to Repay (ATR) rule while 41% is designated as Higher Priced-QM and the remainder either meets the criteria for Safe Harbor QM or ATR does not apply. Due to Caliber’s limited performance history of non-prime loans, Fitch capped the highest achievable rating at ‘Asf’.

The certificates are supported by a pool of 368 mortgage loans with credit scores (701) similar to legacy Alt-A collateral. However, unlike legacy originations, the loans were underwritten to comprehensive Appendix Q documentation standards and 100% due diligence was performed confirming adherence to the guidelines. Fitch also notes Caliber’s sound operational controls, which are expected to result in better loan performance than pre-crisis loans with similar reported attributes. The weighted average loan-to value ratio is roughly 79% and many of the borrowers have significant liquid reserves. The transaction also benefits from an alignment of interest as LSRMF Acquisitions I or a majority owned affiliate, affiliates of Caliber, will be retaining a 5% vertical interest in the offered certificates as part of risk retention requirements.

Fitch applied a default penalty to 47% of the pool to account for borrowers with a mortgage derogatory as recent as two years prior to obtaining the new mortgage; increased its non-QM loss severity penalty to account for potentially greater number of challenges to the ATR Rule; and applied a loan concentration penalty due to the large loan balances that make up 25% of the pool by dollar amount but just 7% by count.

Initial credit enhancement for the class A-1 certificates of 44.7% is substantially above Fitch’s ‘Asf’ rating stress loss of 19.50%. The additional initial credit enhancement is primarily driven by the pro rata principal distribution between the A-1 and A-2 certificates, which will result in a significant reduction of the class A-1 subordination over time through principal payments to the A-2. The certificate sizing also reflects the allocation of collateral principal to pay only principal on the certificates and collateral interest to pay only certificate interest. Both of these features resulted in higher initial subordination to ensure that principal and ultimate interest (with interest accrued on deferred amounts) are paid in full by maturity under each class’s respective rating stress scenario.

KEY RATING DRIVERS

New Asset Class (Concern): Due to the limited non-prime performance to date of the asset manager, Hudson Americas L.P. (Hudson), and originator of the loans, Caliber, Fitch capped the highest possible initial rating at ‘Asf’. As more post-crisis non-prime performance history is established while upholding appropriate underwriting and operational controls, Fitch will consider a higher rating in the future.

Non-Prime Credit Quality (Concern): The credit scores (on average, 701) resemble legacy Alt-A collateral and the pool was analyzed using Fitch’s Alt-A model with positive adjustments made to account for the improved operational quality, due diligence review, and presence of liquid reserves, and negative adjustments to reflect the concentration of borrowers (47%) with recent credit events, increased risk of ATR rule challenges and loans with TILA RESPA Integrated Disclosure (TRID) exceptions.

Appendix Q Compliant (Positive): Although not required for Non-QM, all loans in the mortgage pool were underwritten to the comprehensive Appendix Q documentation standards defined by ATR. While a due diligence review identified roughly 10% of loans as having minor variations to Appendix Q and would therefore not meet the documentation standards for QM, Fitch views those differences as immaterial and all loans as having full income documentation.

Operational and Data Quality (Positive): Fitch reviewed Caliber’s and Hudson’s origination and acquisition platforms and found them to have sound underwriting and operational control environments, reflecting industry improvements following the financial crisis that are expected to reduce risk related to misrepresentation and data quality. All loans in the mortgage pool were reviewed by a third party due diligence firm and the results indicated strong underwriting and property valuation controls.

Alignment of Interests (Positive): The transaction benefits from an alignment of interests between the issuer and investors. LSRMF Acquisition I, LLC as sponsor and securitizer will be retaining at least a 5% vertical interest in each class of offered certificates. In addition, the mezzanine certificates, representing 14.80% of the transaction will be retained by LSRMF, or an affiliate, as part of its focus on investing in residential mortgage credit. Lastly, the rep and warranties provided by Caliber, which is owned by LSRMF affiliates, also aligns the interest of the investors with those of LSRMF to maintain high quality origination standards and sound performance, as Caliber will be obligated to repurchase loans due to rep breaches.

Modified Sequential Payment Structure (Mixed): The structure distributes collected principal pro rata among the class A certificates while shutting out the subordinate certificates from principal until both classes have been reduced to zero. To the extent that either the Cumulative Loss Trigger Event or the Credit Enhancement Trigger Event fail in a given period, principal will be distributed sequentially to the A-1 and A-2 bonds until they are reduced to zero.

Servicing and Master Servicer (Positive): Servicing will be performed by Caliber, which Fitch rates ‘RPS2-‘, Outlook Negative, due to its fast growing portfolio and regulatory scrutiny. Wells Fargo, rated ‘RMS1’, Outlook Stable, will act as master servicer and securities administrator. Advances required but not paid by Caliber will be paid by Wells Fargo.

COLT 2016-1 Mortgage Loan Trust (US RMBS)

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1005809&flm_nm=15e_1005809_1.pdf

ABS Due Diligence Form 15E 2

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1005809&flm_nm=15e_1005809_2.pdf

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