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.

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