Ellington Financial Mortgage Trust is preparing to issue $257 million in residential mortgage-backed securities backed by non-prime properties. Although marked by relatively low borrower leverage, Ellington also has a notable concentration of alternative income documentation.
EF Holdco WRE Asset, LLC, the deal sponsor, will make the representations and warranties on the deal, which will be collateralized by 536 residential mortgages, according to Kroll Bond Rating Agency. Credit Suisse Securities and Nomura Securities International are initial note purchases, with Rushmore Loan Management Services acting as servicer.
About 97.8% of the loans in Ellington Financial Mortgage Trust were originated after March 11, 2020, when the World Health Organization declared the COVID-19 virus a global pandemic. Further, all of the loans were contractually current as of the cutoff date. Just 1.9% of the loans were subject to COVID-19 relief, but those agreements had since expired, KBRA said.
In one potential credit issue, about 67.4% of the underlying loans in Ellington Financial were self-employed borrowers, who were hit worse due to closures and other forms of lockdowns, KBRA said.
According to Fitch Ratings, which also plans to assign ratings to the notes, about 51.9% of borrowers in the pool use the mortgaged properties as their primary residences, while 41.9% of the underlying pools comprise investor property loans. About 5.2% occupy a secondary home.
Fitch also noted that borrowers in the pool have strong credit profiles, with a weighted average (WA) FICO score of 742, plus a debt-to-income (DTI) ratio of 41.3%. Leverage was moderate, with an original cumulative loan-to-value (CLTV) ratio of 68.3%.
Subordination, sequential distribution, and excess spread provide credit enhancement on the transaction, according to Fitch and KBRA. The class A notes will receive principal on a pro rata basis, while excluding the subordinate bonds, until outstanding balances on all three classes are paid down to zero. Principal will be distributed to classes A-1, A-2 and A-3, also, on a sequential basis, to the extent that either a cumulative loss or delinquency trigger event occurs in a given period.
KBRA expects to assign a rating of ‘AAA’ to the $199 million class A-1 notes; ‘AA+’ on the $11.9 million, A-2 notes; and ‘A+’ on the $11.7 million A-3 notes, which is consistent with Fitch expected ratings.
