Only a single borrower is currently delinquent among the roughly 1,800 newly originated prime loans securitized in the handful of Redwood Trust private-label RMBS seen since the start of 2010, according to a Fitch report Monday.
The rating agency expects the current delinquency to be resolved quickly as the borrower has a loan-to-value ratio near 50% and liquid reserves in excess of the loan amount.
Fitch said a small number of other loans in these so-called RMBS 2.0 deals seen since the downturn have in the past year missed payments, but these were all resolved by the following month. The rating agency also said it believed these were for “non-credit” reasons such as delays in pending refinances.
Prepayments have been faster than expected on the prime RMBS deals, due to their strong credit and the low-rate environment. Seventy-five percent of the loans issued in 2010 and 30% of the first pool issued in 2011 are already repaid in full.
“Relative to the initial pools, remaining borrowers have smaller loan amounts, lower credit scores and higher LTVs. However, all compositional changes have been relatively minor to date. As such, Fitch does not believe that the prepayments have resulted in a material change in credit risk in the remaining pools thus far,” the rating agency said. “Continued rapid prepayments may result in some adverse selection in the remaining mortgage pools. That said, structural features should help mitigate that risk.
“In addition to subordination floors designed to mitigate tail-risk as pools pay down, the shifting-interest principal distribution of the transactions has resulted in a material increase in credit support when measured as a percentage of the remaining mortgage pool,” Fitch said. “The credit enhancement percentage for the senior class of the 2010 transaction has increased from 6.5% initially to over 18% today. Similarly, for the first pool in 2011 the senior class credit enhancement has grown from 7.5% to 10.5%.”
Future anticipated home price declines could put negative pressure on these transactions' performance going forward, but their exceptionally strong credit profiles will put them in a good position to withstand the stress, said Fitch managing director Grant Bailey in a statement issued by the rating agency.
In a recent interview with this publication, Bailey also noted that although the securitized market still faces some challenges, lenders have developed confidence in their origination abilities and the investors want the product.
