Laurel Road Bank, formerly known as Darien Rowayton Bank, has completed what appears to be the first rated securitization of excess student loan servicing strips.
It may also be the only lender to securitize excess servicing strips – essentially the fees left over after paying a subservicer – of any kind of asset besides mortgages.
Rating agency DBRS said Monday it has assigned a BBB rating to a single tranche of certificates issued in the transaction, Laurel Road Servicing Master Trust Series 2018-SA. The certificates are backed by master servicing rights related to certain outstanding student loan securitizations sponsored by Laurel Road.
Like many private student lenders, Laurel Road contracts out the collection of loan payments and allocation of proceeds on student loans that it securitizes. In at least two recent transactions – the $232.9 million Laurel Road Prime Student Loan Trust 2017-B and the $300.3 million 2017-C – the Higher Education Loan Authority of the State of Missouri, also known as MOHELA, is both the servicer and backup master servicer, according to presale reports that DBRS published for those transactions.
DBRS’ rating report on the servicing strips deal did not indicate the size of the tranche of certificates or which student loan securitizations the deal references. It merely states that the assigned rating “considers the quality of the master servicer or servicer under the related servicing agreements and potential linkage to the performance of the master servicer or servicer.”
DBRS considers MOHELA to be an “acceptable” private student loan primary servicer, according to presale reports for the student loan securitization. As of Sept. 30, 2017, MOHELA was servicing $1.6 billion in Federal Family Education Loan Program loans, $11.8 billion in third-party lender-owned private loans, $101.6 million in MOHELA-owned private loans and $35.4 billion in direct loans.
Laurel Road contracts MOHELA to field calls and requests from current borrowers; adjust and correct payments, loan terms, and borrower profiles; and track cash receipts and remitting them to the appropriate trusts or investors, according to the presale reports.
In addition to some onboarding, offboarding and accounting fees, MOHELA charges between $2.00 per loan and $3.00 per loan for loans in repayment, with additional per-loan fees for loans that are delinquent between 10 and 90 days. For loans that are more than 90 days delinquent, Laurel Road assumes servicing duties from MOHELA and will attempt to collect payments from the borrower. The presale reports do not indicate how much servicing fees are left over after paying MOHELA, however.
