Cerberus Capital Management is returning to the securitization market with another large pool of re-performing mortgage loans sponsored by its FirstKey Mortgage affiliate.

The $874.8 million in notes is backed by 4,053 individual loans by borrowers with blemished credit, but with rehabbed loans that have an average seasoning of 102 months. The borrowers have been current for at least the last 24 months. The largest slice of the notes is the $541.49 million Class A-1 notes with a 38.1% credit enhancement. Fitch Ratings has issued a preliminary ‘AAA’ structured finance rating on that top of the capital stack. A $53.8 million tranche of Class A-2 notes next in the P&I waterfall has a 25.4 CE.

The loans have been or will be acquired by FirstKey from 28 transferring trusts, which all acquired the loans the last three years in the secondary market, and are beneficially owned by funds controlled by Cerberus.

First Key Investments, the sponsor, will acquire a 5% vertical interest in each of the seven rated and unrated class of notes for risk retention purposes.

The pool’s $874.8 million in collateral includes a $42.95 million share (or 4.91% of the unpaid principal balance) consisting of non-interest bearing principal forebearance totals that are outstanding on 892 loans. The forbeance was used by Fitch in calculating the borrower’s loan-to-value ratios despite the amounts not being owned during the term of the loan.

Nearly 80% of the loans have been modified. Select Portfolio Servicing Inc. is serving all of the collateral pool, which is heavily concentrated on California residential markets in Los Angeles and San Francisco. The 37% California share of the pool is larger than in recent Town Point collateralizations, stated Fitch.

The pool consists of 88% single-family dwellings and 94% owner-occupied homes, also slightly higher than recent Towd Point transactions of re-performing home loan securitizations.

Of the loans in the pool, 1,462 have no findings of potential compliance violations or missing disclosure material documentations. Another 1,886 loans are missing non-material docs or exceptions that pose no issues due to the expiration of the statute of limitations on enforcement actions.

The remaining 17% of loans were cited by Fitch for having material violations of lacking compliance documentation, such as RESPA violations, but again the majority involved have expired statute of limitations. While such violations wouldn’t invalidate the notes, Fitch warns they could be used in foreclosure defenses by homeowners, which could delay liquidation in the event of a default.   

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