Caliber Homes is going it solo on its next subprime mortgage securitization.
Unlike the sponsor’s previous deal, completed in April, the $426.2 million COLT 2017-2 is backed entirely by loans originated by Caliber, an affiliate of private equity firm Lone Star Funds. There are no loans originated by Sterling Bank & Trust, which accounted for 22% of the collateral for the April deal.
The shift to 100% Caliber origination resulted in “modest” credit drift, according to Fitch Ratings. However, this is offset by the higher percentage of loans that are underwritten to full documentation as well as the higher credit enhancement on the senior classes.
Fitch expects to assign an AAA to a $256.7 million tranche of senior notes that benefit from 40% CE. That’s up significantly from 34.1% for the senior tranche of the April deal, but still lower than the 42.45% for the senior tranche of a deal completed in December.
The 920 loans used as collateral have a weighted average model credit score of 705, down from 713 for the previous deal; and a weighted average combined loan to value ratio of 80.1%, up from 74.8%.
On the plus side, borrowers in the latest deal have slightly higher liquid reserves, a weighted average $187,703, versus $176,854 for the prior deal.
While, all of the loans were underwritten to a full documentation program, roughly 46% consists of borrowers with prior credit events and 43% had a debt-to-income ratio of over 43%. Investor properties and loans to foreign nationals account for 5% of the pool.
This is a departure from the prior COLT transaction that included “a material percentage” of loans underwritten to bank statement programs, per Fitch.
Among other differences between the two deals is a change in the delinquency trigger, which reduces the amount of principal distributed to mezzanine classes of note in high-stress scenarios. In the prior transaction, the trigger was based off of a rolling six-month average, while this transaction has moved to a test that is based on the current month’s performance only.
According to Fitch, this change benefits the senior class as it redirects principal as soon as performance starts to deteriorate as opposed to prior deals where it may have taken a number of months. However, it also adds to the volatility of principal distributions.
