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FirstKey reverts to mix of 1st, 2nd liens in next reperforming RMBS

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FirstKey is reverting to a mix of first- and second-lien loans for its next offering of reperforming mortgage bonds.

The $656.5 million Towd Point Mortgage Trust 2010-1 is backed by 4,603 loans acquired between 2014 and 2018, 93.4% of them first liens and 6.6% of them second liens, according to rating agency presale reports. By comparison, FirstKey’s previous deal, completed in December, was backed entirely by second liens. It was the first time the sponsor, which is controlled by Cerberus, had one a pure second-lien securitization, after testing the water with several deals that included small exposure (less than 10%) to them.

The credit characteristics of the collateral for the latest deal are roughly similar to those of recent Towd Point deals backed by a mix of first and second liens. The loans are approximately 149 months seasoned and 93.3% have been modified; these modifications happened more than two years ago for 90.7% of the modified loans.

Within the pool, 1,381 mortgages have non-interest-bearing deferred amounts, which equate to 10.5% of the total principal balance. Included in the deferred amounts are HAMP and proprietary principal forgiveness amounts, which comprise approximately 0.05% of the total principal balance.

The bulk of the loans, 96.3%, are current, 2.9% have missed a single mortgage payment and 0.8% are in bankruptcy, though all bankruptcy loans are performing or 30 days delinquent.

Approximately 81.8% of the mortgage loans have not missed a single payment for at least the past 24 months. And all are exempt from the Ability-to-Repay/Qualified Mortgage rules.

In in its presale report, DBRS noted that the loan-to-value ratios are generally stronger than other reperforming portfolios it has reviewed; it puts the weighted average LTV at 80.1%.

The weighted average FICO of 698 is slightly higher than that of the FirstKey’s five prior deals backed by a mix of first and second liens.

The loans will be serviced by Select Portfolio Servicing. The servicing fee for the TPMT 2019-1 portfolio will be 0.16% per annum, lower than transactions backed by similar collateral, according to DBRS. The rating agency stressed such servicing expenses in its cash flow analysis to account for a potential fee increase in a distressed scenario.

Both DBRS and Fitch expect to assign triple-A ratings to the senior tranche of notes to be issued in the transaction, which benefits from 25% credit support.

FirstKey will retain a 5% eligible vertical interest in each class of securities to be issued, other than any residual certificates, to satisfy the credit risk retention requirements.

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