A pool of peak-vintage seasoned performing and reperforming loans is collateralizing the residential mortgage-backed securities (RMBS) Citigroup Mortgage Loan Trust 2021-RP4.
Roughly 98% of unpaid principal balances on the loans have been modified, so FitchRatings increased its loss expectations because of the delinquent loans, and a high percentage of so-called dirty current loans.
Various entities under the Citigroup name play key roles in the deals, from sponsor and seller to depositor, issuer and lead underwriter.
The capital structure calls for three senior notes rated ‘AAA’ through ‘A,’ followed by three subordinate classes of notes rated ‘BBB’ through ‘B,’ a traditional senior-subordinate sequential structure. Subordinate notes will not receive any principal payments until the most senior notes outstanding are paid in full.
Fitch counts that structure as a positive. Further, the trust has a provision to reallocate principal to pay interest on the notes rated ‘AAA’ and ‘AA’ prior to other principal distributions. This, Fitch says, will promote the timely repayment of interest to those classes, should the servicer fail to advance payments.
That is an important feature, because the servicer in this transaction, Rushmore Loan Management Services, will not advance delinquent monthly payments of principal and interest. The lack of principal and interest financing means that the loan-level loss severity is less for Citigroup Mortgage Loan Trust 2021-RP4 than those where the servicer must to advance those funds.
Structural provisions and cash flow priorities, plus the deal’s increased subordination allow for timely payments of interest to the classes rated ‘AAA’ and ‘AA’.
Fitch did note that operational risk is low in the transaction, because it is well controlled.
The rating agency is also on the lookout for several potential issues, including a significant level of deferred amounts, or noninterest-bearing principal forbearance. Deferral amounts totaling $558.7 million, or 21.21% of the UPB is outstanding on 11,115 loans. Fitch included the deferral amounts when calculating the borrower’s loan-to-value ration and their sustainable LTVs. This inclusion resulted in a higher probability of default and loss severity, even if there were no deferrals.
