The CFMT 2022-EB02, LLC Asset-Backed Notes, Series 2022-1 is preparing to raise $437.6 million from the capital markets, through a deal secured by a set of special units of beneficial interest (SUBI).
The SUBI represent interests in various residential loans, such as early buyout (EBO) mortgages, real-estate owned (REO) assets, and related advances made by the servicer prior to the transaction’s cut-off date, according to a pre-sale report from Kroll Bond Rating Agency. A pool of seasoned, non-performing and performing loans that are insured by the Federal Housing Administration (FHA) comprise the underlying assets in the collateral pool, KBRA said.
Early buyout strategies in MBS deals are expected to become more prevalent, in light of the size of the overall GNMA market, as GNMA’s share of outstanding MBS amounted to around $2.1 trillion in 2021, up from about $400 billion in 2007, KBRA said.
Some 3,405 first-lien loans comprise the subject pool, which KBRA described as seasoned delinquent. At certain times in the lives of the loans, almost all of the underlying loans were pooled in Ginnie Mae mortgage-backed securities (MBS), but had been repurchased from those MBS when the loans had become seriously delinquent. Seasoned collateral generates lower and slower estimated principal and interest recovery percentages, since the process of re-performing resolution generally generates the highest income, and offers the quickest path of a loan recovery.
KBRA noted that the securities would be issued through seven classes of notes. The notes benefit from an interest reserve account, which serves as a liquidity facility that provides interest payments to the notes in the event that available funds fall short to cover the interest payments amounts due on the notes. The reserve account will have a starting balance of about $8.1 million.
Before an acceleration event happens, the account will have a target balance equal to the sum of six months of interest at the applicable class coupon on the current note amount—at the time—of each of the class A through M5 notes.
KBRA expects to assign ratings ranging from ‘AAA’ on the $352.3 million, class A notes, through the ‘B’ on the $6.5 million M5 notes.
All of the notes have a rated final maturity date of July 2054.
