Citigroup’s private-label RMBS: Structuring for the new normal

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As COVID-19 infections increase across the country, including in California, Citigroup has structured a residential mortgage-backed securities offering fit for the times, providing investors with a strong deal structure and robust collateral.

The multi-tranche, $364 million Citigroup Mortgage Loan Trust 2020-EXP1 transaction pools 431 loans, 118 of which exceed $1 million, and the borrowers have strong credit profiles, with a high weighted average FICO score of 751. Thirty percent of the pool is adjustable-rate mortgages and the rest is fixed, mostly amortizing over 30 or 40 years.

In a June 23 presale report, Fitch Ratings said that to account for cash-flow disruptions stemming from the pandemic, it assumed deferred payments on a minimum of 40% of the pool for the first six months of the transaction for all rated categories. It reverts to its standard delinquency and liquidation timing curve by month 10, an assumption based on observing legacy delinquencies and past-due payments following Hurricane Maria in Puerto Rico.

Unlike most RMBS, however, none of the securitization’s loans are in forbearance plans, in which borrowers have postponed monthly mortgage payments. Fitch notes that after the cutoff date for mortgages to be included in the pool, one borrower called Shellpoint Mortgage Servicing to discuss forbearance, but on the same day the borrower made the June payment.

Only 2.9% of the pool consists of borrowers with credit events in the past seven years, and 1.97% are loans to foreign nationals. A majority of the loans, 62%, are concentrated in California.

Besides the strong collateral, the rating agency said, the “transaction has one of the strongest structures that Fitch has seen in the Expanded Prime/Non-QM sector.” Expanded prime loans have features outside the requirements for qualified mortgages purchased by government-sponsored enterprises.

One strength is the transaction’s sequential pay structure, which locks out subordinate classes from interest and principal payments until higher-seniority classes are paid. It also prioritizes interest over principal payments for AAA and AA bondholders, which, along with other structural measures, ensures they receive timely interest payments. In addition, a three-month interest reserve fund is available to pay interest, if needed.

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