Caliber Home Loans’ next offering of subprime mortgage bonds includes a new product offered to borrowers with a stronger credit profile than its other programs — but also less equity in their homes.
While Elite Access Program loans do not account for a material percentage of the $342.65 million collateral pool of COLT 2018-2, the transaction nevertheless benefits from the higher credit scores of these borrowers, according to Fitch Ratings.
In all other respects, both the collateral and structure for COLT 2018-3 are substantially similar to
All the loans in the pool of the latest deal were originated by Caliber Home Loans, an affiliate of Lone Star Funds. Approximately 66% of the pool is designated as non-QM, while 26% consists of higher-priced QM; the remainder either meets the criteria for Safe Harbor QM or are not subject to the Ability to Repay rule.
The credit profile is also in line with the prior deal, with a notable increase in the amount of fixed-rate collateral, according to Fitch.
The pool has a weighted average model credit score of 706 and a weighted average combined loan to value ratio of 79%. Of the pool, 39% consists of borrowers with “prior credit events” and 54% had a debt to income ratio of over 43%. Investor properties account for 2% of the pool.
Compared to the prior transaction, there are fewer borrowers in the lowest FICO bands; just 0.5% of the loans have FICOs of less than 600, down from 1%, and 8.4% have FICOs of 600-650, down from 9.1% for the prior deal. However, there are also fewer borrowers in the highest FICO bands; just 18.5% have FICOs of 750 or higher, down from 21.1%.
Fitch expects to assign an AAA to the senior tranche of notes, which benefit from 33.1% subordination (in other words, 76.9% of the notes issued have a lower payment priority), up from 31.3% for the prior deal.
Nomura Securities International is the underwriter.
Another ratings consideration cited by Fitch is an apparent slowdown in prepayments of nonprime mortgages originated this year. Previous vintages have experienced very high rates of prepayments as borrowers have taken advantage of an improvement in their creditworthiness or an increase in home equity to refinance. High prepayments reduce the “tail risk” in mortgage bonds, which has contributed to a number of ratings upgrades.
“While still high by historical standards, the prepayment trends in 2018 transactions could be pointing to a lower prepayment trajectory than prior vintages,” Fitch noted in its presale report. “While, slower prepayment rates are alone not expected to result in negative rating pressure, it could reduce the rate of positive rating pressure observed in earlier deals.”
