Bayview's next RPL RMBS is backed by smaller balance loans

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Bayview Asset Management next reperforming mortgage bonds is backed by loans with much smaller balances than its previous RMBS, according to rating agency presale reports.

The transaction, Bayview Opportunity Master Fund IVb Trust 2017-RT2 will issue $125.82 million of notes; the senior Class A notes, are rated triple-A by both DBRS and Fitch Ratings. They benefit from 38.65% credit enhancement in the form of subordination of the Class B notes. That’s up from 27.25% for the senior tranche of a transaction that Bayview completed earlier this year. All of the notes pay interest at a fixed rate and have a legal, final maturity of August 2057.

While neither presale report explicitly states why Bayview had to pay up to get a triple-A on the senior notes of this offering, the average balance size ($79,584 vs $106,027 for BOMFt 2017-RT) is one of the most notable differences. And Fitch highlights the low average property value of homes ($140,000) in its report; it notes that this is at the low end reperforming RMBS that it rates, and that, historically, loans for low-value homes have experienced higher loss severities than loans on more expensive homes.

In many other respects, the collateral for the latest deal is similar to that of the previous one. Approximately 44% of borrowers in the latest pool have had a delinquency in the past two years, with a majority of those delinquencies (29.3%) occurring within the past year. Just under 66% of the loans were modified due to performance issues.

For comparison, approximately 52% of the loans in Bayview’s previous offering had prior delinquencies and nearly 78% of the loans were modified. However, the loans in both transactions were current at the time of issuance.

Despite the tendency of borrowers in the pool to make late payments, Fitch noted that an average seasoning of 11 years indicates their desire to stay in their homes. On average, property values increased 6% over this period.

The average FICO for borrowers in the pool is 647; that compares to an average of 632 in its earlier offering this year.

Borrowers in the pool have substantial equity in their homes. Originally at 79.9%, the current loan-to-value ratio of the pool is 70.7%, according to DBRS. The original LTV ratio of Bayview’s prior securitization was slightly lower at 77.1%; however, the current LTV of its last transaction is significantly lower at just 62%.

Headquartered in Florida, Bayview is an investment management firm specializing in investments in mortgage credit, MBS, and other mortgage-related assets. Prior to 2008, Bayview issued 75 securitizations of commercial and residential mortgages. Between 2012 and 2016, it issued 46 securitizations of nonperforming and reperforming loans for a combined $14.6 billion.

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