LoanDepot, the nonbank mortgage lender, is securitizing a loan warehouse facility.
The transaction, loanDepot Station Place Agency Securitization Trust 2017-1, will issue $300 million of bonds backed by a revolving pool of newly originated, first-lien, fixed-rate, residential mortgage loans eligible for purchase by Fannie Mae or Freddie Mac or for guarantee by Ginnie Mae.
The loans will be originated by loanDepot, which has agreed to repurchase them within a year, presumably in order to either resell them or resecuritize them in a longer-term facility.
The transaction is similar to several sponsored in recent years by Jefferies that used the same moniker, Station Place, but were backed by revolving pools of mortgages originated by multiple lenders, none of them Jefferies. Unusually, Moody’s presale report does not name the deal’s structuring agent, though it does reference these earlier deals.
“Unlike previous Station Place transactions, where the repo seller was an investment grade entity, the repo seller [loanDepot] is an unrated entity that may lack the financial wherewithal to repay the facility at the end of the two-year term,” the presale report states.
U.S. National Bank is the standby servicer.
However, Moody’s takes some comfort from the high quality of the collateral, which will consist of first-lien, fixed-rate loans with a maximum weighted average loan-to-value ratio of 85%, a maximum cumulative LTV of 100%; and a minimum weighted average FICO of 715.
The value of the mortgages will also be marked to market on a daily basis, and loanDepot is required to make good should the value fall below a certain level, which Moody’s says will reduce the risk of a shortfall should loanDepot default and the collateral is liquidated to repay the notes.
An ongoing diligence review plays a critical check on the collateral composition during the revolving period. Clayton Services will conduct due diligence on a random sampling of 100 loans every 90 days, beginning 30 days after the close of the transaction. However, Moody’s characterized this review as “limited.”
The rating agency expects to assign an Aaa to the senior tranche of notes to be issued, which benefit from 34% subordination. There are also four tranches of subordinate notes with ratings ranging from Aa3 to Ba1, two unrated tranches, and a tranche of trust certificates.
Moody’s expects losses of 3.2% in its base-case scenario, in which loanDepot does not pay the aggregate repurchase price for the loans at the end of the deal’s two-year term, and repayment of the notes depends on the credit performance of the remaining static pool of mortgages.