Credit Suisse’s first residential mortgage securitization of 2013 made some improvements to representations and warranties relative to the issuer’s past post-crisis jumbo deals; but they remain weaker than the standards set by Redwood Trust’s RMBS deals.
DBRS and Fitch Ratings both assigned their top ratings of ‘AAA’ to the $392.4 million class A-1 tranche of CSMC Trust 2013-TH1. They also assigned these ratings to its interest-only class, A-IO-1, notes.
“DBRS views this representations and warranties standard [as] stronger than that of the previously-closed CSMC 2012-CIM3 transaction, which DBRS did not rate,” said the ratings agency in its presale report. “However the relatively weak financial strength of the originators and the conditional backstop by the seller still demand additional penalties and credit enhancement protections.”
Credit Suisse’s subsidiary DLJ Mortgage Capital, is backstopping the reps and warrants in the event of an originator’s bankruptcy or insolvency proceeding, or if the originator fails to cure, repurchase or substitute such breach or loans. However, the backstop is subject to certain conditions and sunset provisions, DBRS noted in the report.
Credit Suisse set similar sunset provisions, which limit the amount of time investors in the deal have to make claims that loans used as collateral do not meet stated underwriting criteria, in the bank’s CSMC Trust 2012-CIM3 (CIM3) deal last year. In that deal, the representations and warranties are also backstopped by DLJ.
But Fitch noted in its presale report for Credit Suisse’s latest deal, CSMC 2012-CIM3, that the backstop being provided by DLJ is made weaker, relative to those provided in other Fitch rated post-crisis RMBS transactions, because of the 36-month “sunset on a number of provisions and the conditional clauses in the breach definition.”
The transaction also does not provide for an automatic breach review trigger but this is somewhat mitigated by the fact that investors across the capital structure can direct the trustee to initiate loan reviews and enforce put-back rights on loans that breach reps and warrants covenants, explained Fitch.
The ratings agency said that it accounted for the weaker features as part of its transaction analysis.
Fitch also assigned final ratings appropriate for the asset class ranging from a slightly lower investment grade rating of ‘AA’ to a speculative grade ‘BB’to classes B1 through B4, noting that the top rating the senior tranche is supported by 7.05% subordination on five B classes. Fitch did not rate class B-5 notes offered under the transactions capital structure.
According to Fitch, there are 555 loans in the pool with a total balance of $425,672,567, an average loan balance of $766,978, a weighted average original combined loan-to-value ratio of 68.2%, a weighted average original FICO credit score of 779, and a weighted average coupon of 3.99%.
The mortgage loan originators in the pool are Quicken Loans Inc. (19.1%), PHH Mortgage Corp. (17.7%), BofI Federal Bank (9.9%), First Savings Mortgage Corp. (9.6%), Skyline Financial Corp. (8.4%), Caliber Funding LLC (8.3%), Pinnacle Capital Mortgage Corp. (5.4%) and various others (21.6%), according to the presale reports.