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Imperial Fund Mortgage Trust returns to tap the credit markets for $305 million

In the third issuance of mortgage pass-through certificates this year from the sponsor Imperial Fund II, Imperial Fund Mortgage Trust 2021-NQM3 has whittled the percentage of five-year hybrid ARM in the collateral pool down to 0.2%.

The representation of five-year hybrid ARM mortgages is at the lowest level since the Imperial 2020-NMQ1 deal hit the market, with a near-even split of 51.9% of fixed-rate mortgages to 45.1% of the collateral pool, according to DBRS Morningstar, which expects to rate the notes. Since then the 2021-NMQ1 had a 25.2% concentration of five-year hybrid ARMs, then 4.0% in the Imperial 2021-NMQ2.

The current deal uses a capital structure virtually identical to the 2021-NMQ2, with three classes of senior notes with ratings ‘AAA’ to ‘A’, that will pay on a pro rata basis; a mezzanine piece, class M-1, rated ‘BBB’; and three subordinate classes to be paid sequentially, according to DBRS.

By the October 1 cutoff date, about 63% of the collateral are considered non-QM, in keeping with the CFPB’s Qualified Mortgage/Ability-to-Repay rules, while about 37% of the loans were extended to investors for business purposes, and not subject to QM/ATR rules.

DBRS noted that the portfolio contained some mortgages originated to borrowers with weaker credit. In the current pool the loans have an issuer-calculated weighted average (WA) debt service coverage ratio (DSCR) of 1.25x.

Just 4.8% of the pool was full documentation with just 4.8%. Mortgages underwritten using bank statements accounted for 44.6% of the pool, while loans underwritten with DSCR documentation is 27.7%. DSCR loans are generally made to experienced investors who intend to rent and manage the properties.

For investor loans, DBRS applies a 1.7x to 1.8x penalty to default frequency, relative to owner-occupied loans. The rating agency applies a further penalty to DSCR loans that were underwritten using property cash flow or rental income to help borrowers meet income qualification requirements.

DBRS said that it applied loan-level factors to the probabilities of default (POD) based on each home loan’s DSCR, its loan-to-value ratio and FICO score. Eventually, DBRS-calculated DSCR for the loans is 1.12x.

The pool is not highly diversified by geography. By current loan balance, three states accounted for 86.1% of the pool. Florida had the highest concentration, with 47.9%; California followed with 20.9% and New York with 17.2%.

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