LSRMF3 Acquisitions Investments is preparing to sponsor a $297.7 million, residential mortgage-backed certificates deal, where some 553 non-prime mortgages will support the repayment of certificates issued through the COLT 2022-8 Mortgage Loan Trust.
Multiple originators underwrote the mortgages in the collateral, where a majority of the loans (59.5%) went to borrowers who financed a primary residence, while 36.7% of the loans are on an investor property, according to a pre-sale report from Fitch Ratings. In addition, some 63.2% of the mortgages are nonqualified, the rating agency said.
The rating agency notes that its expected loss in the 'AAA' stress is 25%, driven mostly by the presence of non-QM collateral and a significant amount of concentration in investor cash flow products.
Also, in a market where mortgage rates are skyrocketing and some housing markets are seeing sales dip, Fitch says the home price values of the current pool are 10.2% above a long-term sustainable level
Barclays Capital is the lead underwriter on the deal, while Select Portfolio Servicing and Northpointe Bank will service the notes.
On average, the mortgages have a balance of $538,400, and on a weighted average (WA) basis, the loans had an original loan-to-value ratio of 75.5%, month-to-month cumulative LTV of 74.8%, a model FICO score of 731, and original debt-to-income ratio of 42.9%.
Fitch raised a cautionary flag about another aspect of the transaction, specifically the loan documentation. About 81.6% of the loans in the pool were underwritten to less than full documentation. Also, a majority of the loans, 50.7%, were underwritten to a bank statement program for verifying income, inconsistent with Fitch's view of a full-documentation program.
Yet the senior classes of the deal did earn high ratings from Fitch, such as 'AAA' on the A1 notes; 'AA' on the A2 notes and 'A' on the A3 notes, owing to at least a couple of positive deal attributes. COLT 2022-8's notes will be issued through a modified sequential payment structure. The trust will repay principal on a pro rata basis among the senior certificates, and the subordinate bonds will receive none until all principal balances in all of the senior classes are paid down to $0.
Should a loss event occur—be it a cumulative, delinquency or credit enhancement—the trust will distribute principal sequentially to classes A1 through A3, the senior notes, until those balances are reduced to zero.
Also, the trust will advance delinquent principal and interest payments on the mortgage loans for the first 180 days of delinquency, to the extent that such advances can be recovered.
As for the more subordinate certificates, Fitch intends to assign ratings ranging from 'BBB' to 'B' on the M1 through B2 classes. The notes have a stated final maturity of August 2067.
