A pool of closed-end, second-lien mortgages will collateralize a pool of residential mortgage-backed securities (RMBS) being sold to investors through the EFMT 2026-CES, raising $221.8 million.
The underwriting for the loans during origination relied on full documentation, in keeping with Ability-to-Pay rules, and all the loans received a third-party due-diligence review, according to Kroll Bond Rating Agency. All those provisions help mitigate the higher severity of loss associated with second-lien priority loans, KBRA said.
The deal is slated to close on January 15, with
EFMT will repay investors sequentially, KBRA said.
One provision prohibits EFMT 2026-CES1 from advancing any interest and principal on delinquent mortgage loans, according to KBRA. This could turn out to be a credit challenge in the deal because it could result in reductions in total collections during stressful periods, the rating agency said.
All the 2,802 closed-end second mortgages were newly originated, with loanDepot.com accounting for the plurality of the loans in the pool, 47.1%, according to analysts at Fitch Ratings.
Loans have a weighted average FICO score of 737, and they have seven months' seasoning, according to Fitch. A sizable portion of the loans, about 38.6%, were taken out by borrowers with a WA original FICO score of above 750, the rating agency said.
On a WA basis, the pool has an original combined loan-to-value ratio of 65.96%, KBRA, noting that it translates to a sustainable loan-to-value ratio of 73.68%.
The home loans have an average balance of $79,163, with the aggregate top 5 balances accounting for 1% of the pool balance. Also, the underlying loans have a WA coupon of 8.67%.
Borrowers have a non-zero weighted average annual income of $153,716, with liquid reserves of $51,878.
KBRA assigns AAA to all the A1 tranches and AA+ through B+ to the A2 through B2 tranches. Fitch Ratings assigns AAA to the A1 classes and AA through B to the A2 to B2 classes.
