A servicer advance deal is coming down the pike. Earlier this week, Standard & Poor’s rated a $1.6 billion transaction with multiple tranches, originated by Home Loan Servicing Solutions (HLSS).
The agency gave two tranches worth $671 million apiece a ‘AAA (sf)’ rating. All the series are floating rate.
The collateral for a servicer advance transaction consists of receivables in the form of the right to reimbursement of advances made on the mortgage loans serviced according to specific pooling and servicing agreements (PSAs) in certain U.S. RMBS transactions.
It is standard practice for servicers to make principal and interest payments to U.S. RMBS investors before they themselves receive those flows from the mortgage holders. The servicers are then repaid from future collections.
A pooling and servicing agreement will typically spell out whether the servicer can recover the advance at the loan level or the pool level. S&P looks more kindly on deals with agreements that allow the latter.
It was unclear as of press time which type of pooling and servicing agreement is involved in the HLSS transaction. S&P analysts did not return a request for comment as of press time. A pre-sale report was not available either.