Sponsors of the PMT Loan Trust 2021-INV1 are planning to issue $414 million in residential mortgage-backed securities (MBS), and although the deal is comprised entirely of investment property loans, it benefits from enough strong borrower credit and high quality collateral to earn strong ratings throughout virtually the entire deal, according to Kroll Bond Rating Agency.
The inclusion of investment property loans in residential mortgage-backed securities (MBS) deals usually raises ratings red flags, presumably because those properties are more susceptible to speculation, more likely to have owners with less stable incomes, and less likely to receive adequate maintenance.
PMT Loan Trust’s investment property loans, which account for the entire collateral pool, are agency eligible. Borrowers on the underlying loans in PMT Loan Trust 2021-INV1 have a weighted average (WA) original credit score of 778, plus a WA debt-to-income ratio of 34.6%.
Also, borrowers have significant equity in the properties collateralizing the mortgages, as reflected in the WA original loan-to-value ratio of 59.2%, KBRA said.
KBRA said that it assigns higher default probabilities for non-owner occupied properties relative to primary residences. Further, the rating agency said, it applied an additional penalty to the pool’s projected default, compared with typical prime RMBS pools.
About 1,416 loans are in the PMT Loan Trust collateral pool as of the deal’s October 1 cutoff date. The loans have an average loan balance of $292,855.
The deal is geographically diversified along two lines, state and metro areas.
Mortgages in California represent 38.1% of the pool’s loan balance, followed by Washington, with 7.4% and Texas, with 5.4%. The collateral pool has an even greater level of diversification by core-based statistical areas (CBSA) – even though most of the top CBSAs are located on the west coast. Los Angeles represents about 13.2% of the pool’s balance, followed by Washington, D.C., with 7.0% and San Francisco, with 6.7%.
The six super senior tranches, which have ‘AAA’ ratings, received a credit enhancement level of 15%. The senior support tranche has an enhancement level of 5.5%, and the subordinate sequential tranches have enhancement ranging from 0.85% to 5.15%.
Bank of America and Morgan Stanley & Co. are the notes’ lead purchasers.
