A portfolio of residential mortgages with no income verification will back a $307 million securitization from the CHNGE Mortgage Trust slated to close at the end of May, according to a report from DBRS Morningstar.
Deal sponsor Change Lending can offer mortgages without verifying income, which is contrary to post-crisis regulations, because as a Community Development Financial Institution, it is required to lend a certain amount to underserved or low-income borrowers.
Still, DBRS notes, "the mortgages included in this pool were made to generally creditworthy borrowers with near-prime credit scores, low loan-to-value ratios (LTVs), and robust reserves." In addition, the few securitizations that have been made on similar CDFI originations have performed well, the agency says.
Cantor Fitzgerald and Odeon Capital Group are underwriters on the deal, which is named CHNGE Mortgage Trust 2023-2, according to DBRS.
Mortgages from two Change Lending programs, Community Mortgage (99.5% of the loans) and E-Z Prime, make up the portfolio. Previous deals with those loans used a single senior class of notes with pure sequential payment structures, according to the DBRS report. In contrast, this transaction has a sequential-pay cash flow structure with a pro-rata principal distribution among the three senior classes.
These mortgages are riskier, DBRS notes, because they were made to non-prime borrowers, and because of the lack of income verification. In addition, the representations and warranties framework in this deal is "substantially weaker" than most post-crisis prime securitizations, the report says. In this case, seriously delinquent loans won't be reviewed automatically, and an optional review may take place only when losses are realized. Also, the sponsor, rather than a third party, may conduct the review.
Despite those concerns, the loans do exhibit some strengths, DBRS says. Fixed-rate mortgages account for two-thirds of the pool, while the remaining adjustable-rate loans have initial fixed periods of five or seven years, which should be sufficient time for borrowers to refinance or sell if necessary. Also, 100% of the loans are current.
DBRS expects to rate the class A-1 notes 'AAA'; the class A-2 notes AA, and notes from class A-3 and A-4 will get 'A' ratings. Class M-1 gets a provisional rating of 'BBB', class B-1 a 'BB', and class B-2 a 'B'.
