Caliber Home Loans’ next non-prime mortgage securitization is nearly twice as large as its previous deal, completed in December.
The $402.65 million dollar transaction is backed by 853 loans, all of them originated either by Caliber itself or by Sterling Bank & Trust. By comparison, the previous deal was sized at just $225.75 million, despite the fact that it included loans originated by a third party, Lendsure – a sign that lending volume have picked up significantly.
However that’s far from the only change that Caliber, which is controlled by Lone Star Funds, has introduced. The new deal also features a delinquency performance trigger that reduces the amount of principal distributed to mezzanine classes of notes in high-stress scenarios. This allows the sponsor to offer a lower initial level of credit enhancement on the senior tranche of notes, 34.10% versus 42.45% for the senior tranche of the December deal.
“Since more subordination is projected to be retained in high-stress scenarios than in transactions without a [delinquency] trigger, less initial [credit enhancement] at closing is needed to protect the senior class from projected mortgage pool losses over time,” Fitch Ratings stated in its presale report.
Fitch reckons that the senior classes in both transactions are protected against a similar amount of collateral loss, 24.50% versus 24.75%.
As with Caliber’s prior deals, there are two other kinds of events that trigger a reduction in principal distributed to subordinate tranches: one is related to the level of credit enhancement and the other to cumulative losses. According to Kroll Bond Rating Agency, all three types of triggers are common to other recent securitization of non-prime mortgages.
Fitch, Kroll Bond Rating Agency, Morningstar Credit Ratings, and DBRS all expect to assign a triple-A to the senior notes of this deal.
Caliber and Sterling have two of the most established non-prime programs in the nascent sector. Fitch views the visibility into the origination programs as a strength relative to non-prime transactions with a high number of originators
According to Kroll, the weighted average cumulative loan-to-value ratio of the loans in COLT 2017-1 is comparable to the three previous COLT transactions issued in 2016, where CLTVs ranged from 75.0% to 78.6%.
However, Morningstar notes that the mortgages in the pool have a weighted average current LTV of 75.6%, which means the borrowers have relatively less equity in their homes than other recent non-prime deals. In addition, 24.4% of the pool has a current LTV of 85% or greater.
Borrowers representing 30% of loans in the pool have experienced prior credit events; another 21.7%, representing all of the loans originated by Sterling, use a single month bank statement to verify income, which are generally considered to be a bigger credit risk than borrowers who document income more fully; Kroll believes that this risk is partially offset by a lower weighted average CLTV of 61.6% and higher WA FICO score of 753.
Another 1.1% of loans are considered to be non-prime because they finance the acquisition of investment properties and do not meet guidelines for financing by either Fannie Mae or Freddie Mac; and 0.4% were made to borrowers without a permanent U.S. residence and a lack of U.S. based credit history.
Credit Suisse Securities is the initial purchaser.