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FirstKey markets $1.4B seasoned-mortgage transaction amid RPL/NPL wave

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A September surge of nonperforming/reperforming mortgage securitizations continues with a new offering sponsored by FirstKey Mortgage.

Towd Point Mortgage Trust 2020-4 is a $1.39 billion transaction consisting of 11,673 nonconforming, seasoned performing and reperforming loans with an average remaining balance of $119,125.

Nearly a quarter of the mortgages (24%) with recent delinquencies or incomplete 24-month pay strings in the past two years.

About 7% of the pool by unpaid balance are currently delinquent due to COVID-19 relief programs, according to ratings agency presale reports. Overall, 17.3% of the pool (or 1,464 borrowers) had been on a coronavirus-related forbearance plan this year.

The pool’s weighted average FICO is 692.

Approximately 84% of the loans (seasoned an average of 169 months) have been previously modified. In addition, 2,888 mortgages have non-interest bearing deferred amounts, or about 7.6% of the total principal balance.

The deal features nine classes of senior, mezzanine and subordinate notes. The bulk of the notes balance is in the Class A1 tranche totaling $1.04 billion, with preliminary AAA ratings from Fitch Ratings and DBRS Morningstar. The Class A notes, which are expected to have an interest rate of 1.75%, are supported by 24.9% credit enhancement.

Both Fitch and DBRS noted the higher-risk representations and warranty framework behind the transaction, compared to most prior Towd Point shelf offerings. The deal excludes a delinquency trigger event, for example. But the agencies notes that FirstKey’s RPL/NPL deals have had historically low cumulative credit losses on deals ranging from zero to 1.32% for 41 rated MBS transactions between 2015 and 2020.

The vast majority of the loans in the pool (99%) are exempt from the Consumer Financial Protection Bureau’s ability-to-repay qualified mortgage rules, due to their age.

The transaction will also not include servicer advances of delinquent principal and interest payments.

Over $3.1 billion in RPL/NPL private-label and agency loan transactions took place last month, equaling more than one-third of deal volume to date. Freddie Mac announced earlier this week it had sold via auction 2,806 non-performing first-lien residential loans totaling $464 million, split between four loan pools.

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