FirstKey's next RPL RMBS features higher LTVs

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FirstKey Mortgage’s next offering of reperforming mortgage bonds is backed by loans to borrowers with more equity in their properties than the previous three transactions.

Nearly 73% of the collateral for the $1.3 billion Towd Point Mortgage Trust 2017-4 are “clean current”, meaning borrowers have been making timely payments for the last two years, at least. That’s consistent with prior deals. However, the concentration of loans modified due to some sort of performance issue is five percentage points higher in this latest offering, at just over 90%.

Borrowers in the pool have an average credit score of 672, a 14 point decrease from the last FirstKey securitization but higher than the average score of 668 in the company’s second 2017 offering.

Consistent with the past two FirstKey transactions, the largest geographic concentration of borrowers in the pool consists of Californians; however, the concentration of borrowers from California in the company’s latest offering is more than double in its 2017-3 and 2017-2 deals (24.8% and 23.8%, respectively). Californian borrowers comprise just over 63% of the total pool, with a combined 29.3% living in either San Francisco or Los Angeles. Given that the majority of borrowers are from California, the transaction is exposed to risk from regional economic downturns.

However, the risk associated with the “spotty pay history” and geographic location of the borrowers is somewhat mitigated by the equity borrowers have in their homes, according to Fitch Ratings. The current loan-to-value ratio of the pool is approximately 78%, significantly lower than the 90% LTV ratio on FirstKey’s last deal. Fitch noted that the current ratio is also lower than other reperforming loan securitizations it has rated recently.

Fitch expects to assign AAA ratings to the senior tranche of notes to be issued, which benefits from 28.2% credit enhancement. By comparison, the sponsor had to offer higher credit enhancement to achieve an AAA rating on the senior tranches of its previous two deals: 33.75% for the senior tranche of 2017-3 and 38.15% for 2017-2, according to Fitch

Founded in 2013, FirstKey is owned by Cerberus Capital Management, a New York-based firm currently managing approximately $35 billion in assets. Since its founding, it has served as the asset manager for 14 Towd Point securitizations totaling $13 billion across 67,000 mortgage loans.

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