Fitch Ratings published its criteria for rating securitizations of residential mortgage servicer advance receivables. The sector has seen a slow rise in new issuance in recent months.
In a servicer advance receivables trust (SART), the servicer pledges advance receivables from selected pool(s) of RMBS transactions. According to the underlying Pooling and Servicing Agreements (PSAs), RMBS deals need for servicers to advance delinquent principal and interest as well as other expenses, until the advances are deemed non-recoverable.
The advances are paid back when a borrower becomes current on payments, when a property is liquidated, or when a delinquent mortgage is modified.
Servicer advance receivables are typically paid at the top of the cash flow waterfall, before any payments are made to bond investors as principal or interest.
"While recovery is fairly certain and the rate of recovery is high, there is risk in these deals relating to the timing of the ultimate collection of recoveries," said Fitch Managing Director Roelof Slump.
Aside from analyzing the transaction structure, the rating agency’s analysis focuses on servicer risk factors including its historical performance on advance recoveries, and the financial strength, operational condition and Fitch rating of the servicer.