Cerberus Capital Management has increased the credit enhancement on its latest securitization of re-performing residential mortgages in line with increased risk in the collateral pool, according to Fitch Ratings.
A total of $1.3 billion of securities will be offered via the deal, dubbed Towd Point Mortgage Trust 2015-4. Credit enhancement on the senior, 'AAA' rated class A notes is at 49.9%, compared with 34.85% for the comparable tranceh of the 2015-3 transaction.
Similarly, credit enhancement on the 'AA' rated, class A2 notes jumps to 41.45% from 27.5% in the previous transaction. The 2015-4 notes mature in April 2055.
The higher subordination of the senior notes partly reflects the riskier collateral, which includes a larger share (26.1%) of so-called "dirty current" loans. These are loans that are currently performing but have missed at least one payment in the past 24 months or were missing a full 24-month pay history.
The rest of the pool is comprised re-performing loans that have been paying for the past 24 months, which Fitch identifies as “clean current."
By comparison, Cerberus' 2015-3 transaction completed in July, included only loans with a dirty current status.
This isn't the first time the sponsor has included large amounts of dirty current loans in collateral pools for reperforming RMBS; approximately 16.3% of the loans in TMPT 2015-1 and 19.5% of the loans in TMPT 2015-2 were considered to be dirty current. Those deals were structured with slightly less credit support than the 2015-4 deal, however.
Fitch also cites 350 loans in the 2015-4 pool as graded ‘D’ as a risk factor of the transaction. A ‘D’ grade indicates that the loans either had prepayment penalties that violated state regulations or had HUD1 Settlement Statement exceptions. Loans of this type can be deemed high cost, and Fitch assumes a loss severity of 100%.
Cerberus began investing in residential mortgages in 2008 and began acquiring reperforming loans in December 2013. The sponsor has executed approximately 46 whole-loan purchases to date.
Cerberus generally tries to purchase reperfomring loans with the following characteristics: 100% first lien, non-agency, single-family originations from 2005-2007. Sellers are mostly large money center or regional banks. As of July 2015, the sponsor owned approximately $5.3 billion of mortgage loans.
