COLT 2021-1 Mortgage Loan Trust is set to issue $203 million in notes secured by payments on a portfolio of 386 loans with mixed credit quality.
The loans were sourced from multiple originators, seasoned for three months and aggregated by Hudson Advisors.
FitchRatings, which intends to assign ratings to the notes, says the loans are of high quality, with model FICOs of 735, and 42 percent debt-to-income ratio. Leverage was also moderate, with 77 percent of a sustainable loan-to-value ratio.
A small percentage of the loans, 4.1 percent, have qualified mortgage designation, and 65.7 percent are non-QM, according to Fitch.
Currently, 10 loans are 30 days delinquent, which appears to have resulted from a clerical error. The issuer reported, according to Fitch, that the payments were sent to the wrong servicer, but were subsequently redirected to the correct company, Select Portfolio Servicing, in June 2021.
There is at least one positive aspect to the deal, from a credit standpoint. About 87 percent of the pool was underwritten to less than full documentation, and 45 percent were underwritten to a 12- or 24-month bank statement program designed to verify income.
While Fitch says that method is not consistent with Appendix Q standards and its own view of a full documentation program, there is an important distinction between the COLT 2021-1 pool and legacy Alt-A loans. The underlying loans adhere to underwriting and documentation mandates required under the CFPB’s ATR. Those standards reduce the risk of default that might occur from the borrower’s lack of affordability, misrepresentation or other operational quality risks that might stem from the quality of the underwriting.
As for the deal structure, the COLT 2021-1 has 10 tranches, in which the top six will receive Fitch ratings. The structure distributes principal payments on a pro rata basis to the senior certificates while shutting out the subordinate bonds from principal until all of the senior classes have been paid off completely.
The deal also benefits from a material amount of excess cash flow that benefits the rated certificates before being paid out to the class X certificates, in a priority arrangement similar to the principal payments.
