A pool of 897 residential mortgages, half of which are considered non-qualified, with markedly low borrower leverage and alternative income documentation, will secure $365.2 million in mortgage-backed securities (MBS) from the EFMT 2022-4 trust.
EFMT Sponsor will sponsor the transaction, and three firms—Nomura Securities International, Credit Suisse Securities and Barclays Capital—will act as initial note purchasers. EFMT will repay noteholders through a pro-rata pay and subordination erosion capital structure, according to a pre-sale report from Kroll Bond Rating Agency.
In terms of the underwriting for the transaction, 35.8% of the loans were underwritten using 12- or 24-month bank statements, while 39.7% of the loans underwent debt service coverage ratio underwriting. Also, while half of the pool is comprised of non-qualified mortgages, the remaining loans are considered exempt from Ability-to-Repay, because they were originated for business purposes, the rating agency said.
To that end, about 75% of the properties in the pool are single-family homes or planned unit developments, and condominiums comprise the next-highest concentration in the pool, at 15%. Just 9.8% of the pool is multifamily and other types of properties, KBRA said.
Here is one thing that all of the properties have in common: they were financed by first-lien mortgages.
On a weighted average (WA) basis the loans have an original credit score of 737; a loan-to-value ratio of 71.0%; and a debt to income ratio of 33.1%. The loans' average balance is $407,204, with balances ranging from a floor of $74,143 to $2.8 million. A little more than a quarter of the loans in the pool, 25.5%, have an interest-only period, the rating agency said.
The three senior classes of notes will pay on a fixed 5.9% coupon, KBRA said.
Although the notes from EFMT appear to be supported by a strong borrower base, the transaction has also built in a number of credit enhancement features. The notes throw off very little excess spread, but whatever it does produce will be put to efficient use.
"Each month, any excess cashflow available up to the amount of current period and cumulative realized losses will be used to pay down the most senior classes of certificates outstanding, sequentially," according to the report.
KBRA says it expects to assign ratings of 'AAA' through 'A' in the senior A-1 through A-3 notes; and 'BBB' through 'B+' on the mezzanine through B-2 classes.
