Bayview Asset Management’s next offering of reperforming residential mortgage bonds is backed by lower-balance loans than its previous transaction, 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.

Neither presale report explicitly states why Bayview had to pay up over 10 percentage points for the triple-A, but one of the most notable differences in the collateral is the smaller average loan balance (approximately $79,584 for BOMFT 2017-RT2 vs $106,027 for BOMFT 2017-RT1).

And Fitch, in its presale report, notes that the average property value of homes in the trust ($140,000) is at the low end of RPL RMBS it rates. Historically, loans for low-value homes have experienced higher loss severities than loans on more expensive homes, the rating agency says.

Some of the other credit characteristics of the collateral for the latest deal are more favourable. 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 these loans were modified due to performance issues.

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

Despite the past delinquencies Fitch noted that an average seasoning of 11 years for the latest deal indicates borrowers’ 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 favourably to an average of 632 in its earlier offering this year.

And 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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