GCAT 2023-NQM4 Trust is preparing to issue $290. 4 million in mortgage-backed securities (MBS) to investors, secured by a pool of mortgages that appear to have performed well into the period where they were expected to experience greater losses.
The underlying loans, composed of 520 highly seasoned residential mortgages, many of which are classified as non-qualified mortgages. The collateral also has a weighted average loan age (WALA) of about 26.3 months.
For the most part the underlying loans have very low default rates. Almost the entire pool, 91.8% is clean current, according to a pre-sale report from Kroll Bond Rating Agency, which noted that only 0.6% of the pool had a 60-plus day delinquency and 1.6% of the collateral had 90-plus day delinquency, KBRA's ratings analysts wrote.
The trust will issue the notes through a senior-subordinate structure, and repay them on a pro rata sequential basis, according to KBRA. The three senior tranches—A1, A2 and A3—will issue fixed-rate notes and have earned ratings of AAA, AA and A, respectively. The mezzanine tranche, M1, is slated to be the first in the waterfall to be repaid sequentially, according to KBRA. The rest of the subordinate notes, tranches B1 and B2, have earned ratings of BB+ and B+, respectively. The rating agency did not rate the B3 tranche.
Goldman Sachs is lead underwriter on the deal, where all of the notes have a stated final maturity date of May 2067, according to ratings analysts at Fitch Ratings, which also assessed the notes.
Fitch Ratings also weighed in on the notes and the collateral, taking a mixed outlook on the quality of the mortgages' credit quality. Underlying borrowers have a weighted average FICO score of 738, a 36% debt-to-income ratio and a 68% sustainable loan-to-value (LTV) ratio. Of the 520 mortgages, some 79.0% of them were used to fund the purchase of primary residences, while 21.0% of the loans in the pool represent an investor property or second home, Fitch ratings analysts said.
Fitch also notes a few aspects of the deal that are decidedly negative. For one, about 77% of the pool's loans were underwritten to less than full documentation. Also, 36.7% of the loans were underwritten based on 12- or 24-month bank statements to verify income. This falls outside of what Fitch and the broader industry considers full documentation, the rating agency said.
Fitch expects to assign ratings of AAA, AA and A to the A1, A2 and A3 notes; BBB to the class M1 notes; and BB and B to the tranches B1 and B2, it said.
