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FirstKey pools manufactured home loans into $526M RMBS deal

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FirstKey Mortgage is marketing a rare residential mortgage securitization with collateral made entirely from manufactured-housing loans, according to ratings agency presale reports.

FirstKey, sponsor of the Towd Point 2019-MH1 trust, will market over $526 million in bonds backed by 24,324 first-lien installment loan contracts for mobile home assets — of which more than 81% are chattel-loan contracts that are not tied to real property.

Fitch Ratings states it is the first post-crisis, all-manufactured housing securitization the agency has rated.

Most of the loans (which are seasoned an average of 21 years) are serviced by Southwest Stage Funding, d/b/a Cascade Financial Services. FirstKey aggregated the loans for the transaction, according to the presale reports from Fitch Ratings and Morningstar Credit Services.

Manufactured housing loans are riskier assets for mortgage-backed securities, generally experiencing higher defaults and lower recoveries than other types of mortgages, according to the reports.

The defaults are not only higher, but are reported under the less-restrictive Office of Thrift Supervision methodology compared to Mortgage Bankers Association guidelines for servicer-reported delinquencies.

Both Fitch and Morningstar have applied preliminary AAA ratings to the $327.8 million in Class A1 notes, which are supported with 37.7% credit enhancement.

The capital stack for the Towd Point transaction features several tranches of senior and subordinate notes paying principal and interest, as well as those paying interest-only.

The loans have significant seasoning of 21 years and are currently amortizing and should pay down in about nine years. Fitch considers the expected six-year payoff of the Class A notes a fast pace compared to other RMBS transactions.

All of the loans in the pool are current, although 16.5% of the loans in the pool have a history of delinquencies in the past 24 months; 19.9% have experienced a delinquency in the past 36 months.

Fitch notes that 80% of the homes are double- or multi-wide. Those types of units have lower defaults.

Borrowers in the pool have a below-prime weighted average FICO score of 653, according to Fitch, with 52% of the loans set with adjustable rates.

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RMBS Manufactured homes