Goldman Sachs is issuing its first offering of mortgage bonds backed by a mix of prime jumbo loans and loans that are eligible to be sold to Fannie Mae and Freddie Mac.
Over the past two years, the company has issued approximately $11 billion of rated and unrated reperforming loan securitizations. Since the financial crisis, however, it has only issued a single deal with prime jumbo collateral, in 2014.
It now joins money-center banks JPMorgan Chase and Wells Fargo and as well as mortgage specialists Redwood Trust, Flagstar, Chimera and loanDepot in securitizing both prime jumbo loans and loans that conform with underwriting criteria of government-sponsored enterprises, at least in certain high-cost areas with a higher loan limits.
The most notable difference between Goldman’s deal, GS Mortgage-Backed Securities Trust 2019-PJ1, and recent offerings from the likes of JPMorgan and Redwood is the smaller size: GSMBST 2019-PJ1 It is backed by 334 loans with a total principal balance of $230.6 million that the bank acquired from just four originators: loanDepot.com (47.3%), Pentagon Federal Credit Union (19.3%), Caliber Home Loans (17.8%) and Provident Funding Associates (15.6%), according to rating agency presale reports.
By comparison, JPMorgan is currently in the market with its second transaction of the year, the $437.5 million JPMMT 2019-2, and several of the eight deals it completed last year were closer to $1 billion in size.
GSMBST 2019-PJU's pool consists of fully amortizing fixed-rate 30-year mortgages with with a weighted average loan age of six months. Approximately 24.8% of the pool are conforming, high-balance mortgages that were underwritten by loanDepot and Provident; the remaining 75.2% of the pool are traditional, non-agency, prime jumbo mortgage loans.
LoanDepot is servicing the mortgages that it underwrote; the remainder of the loans will be serviced by Shellpoint Mortgage Servicing. Wells Fargo is the master servicer.
The loans backing GSMBST 2019-PJ1 also have slightly higher loan-to-value ratios than recent deals from either JPMorgan or Redwood Trust. The weighted average LTV is 73%, versus a range of 68% to 70.6% for the last six JPMorgan deals and the last two Redwood Trust deals rated by Moody's Investors Service.
The weighted average cumulative LTV is even higher, at ratio is 74.3%. The latter figure takes into account the fact that 9.3% of the homes have piggyback second mortgages. The weighted average debt-to-income ratio is 34.9%.
Approximately 3.9% of the loans are to finance second homes. These loans represent slightly higher default risk, in DBRS’ view, relative to owner-occupied loans. However, the weighted average cumulative loan-to-value ratios for these loans is 73.2%, lower than the overall weighted average. In addition, these borrowers have higher liquid reserves ($366,976 vs. $222,992) and higher total annual income ($465,289 vs. $276,057), on a weighted average basis, than the entire pool.
Approximately 41% of the borrowers have more than one mortgaged property. However,borrowers with three or more mortgages (with a maximum of 11), which represent 11.2% of the pool, generally show considerable income and liquid reserves. No borrower with multiple mortgage loans has more than one mortgage included in this securitization.
The GSMBS 2019-PJ1 pool has a moderate geographic concentration, per DBRS, with California representing 48.4% of the pool and the top three states representing 63.3%. “The average original loan size of $690,426, while elevated, is not considered significant for a nonconforming pool, given that the maximum conforming loan limit for high-cost areas is as high as $679,650 for single-family homes,” the presale report states.
Both Moody's and DBRS expect to assign triple A ratings to the senior notes to be issued, which benefit from 15% credit enhancement.
Moody's expects losses on the pool to average 0.35% in a base-case scenario. The rating agency considers the pool to have a similar credit risk profile to recent JPMMT and SEMT transactions with respect to LTV and FICO distribution. However, it considers Goldman's aggregation platform to be weaker than that of peers due to the lack of historical performance and limited quality control.
Both Moody's and DBRS say that Goldman expects to continue to be an active market participant, purchasing pools of collateral for both rated and unrated securitizations, as well as whole loan sales and other exits.
