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MetLife's first reperforming RMBS backed by pristine recoveries

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MetLife is sponsoring its first-ever securitization of re-performing and seasoned performing residential mortgage loans in what ratings agencies deem one of the highest credit-quality RPL deals to date.

Both Fitch Ratings and DBRS are issuing preliminary triple-A senior-note ratings on $343.5 million MetLife Securitization Trust 2017-1. The bonds are backed by 1,378 first-lien mortgages of previously delinquent or modified mortgages. The $288.9 million Class A notes are supported with 15.9% credit enhancement.

The transaction is the first to be issued by the insurance giant, which has been acquiring re-performing loans since 2012 through its MetLife Investment Management (MIM) unit.

While all of the loans in the pool have undergone delinquencies or one-or-more modifications (the latter representing 80.4% of the pool), MIM has been able to cherry pick the safest of the scratch-and-dent mortgage loans available from the secondary market for MetLife’s inaugural pool.

All of the loans have been current at least two years and 92% have been clean for three years. Only 8% of the loans have regulatory compliance violations or lack of documentation, compared to 10.8% for most RPL deals.

Besides third-party review of compliance, payment history, title and lien status and data integrity, each of the properties also had updated valuations through broker price opinions. MIM's portfolio of loans also have an average 60-plus day delinquency rate of 3.46% in its $16 billion managed portfolio that even bests the 4.24% 90-plus day delinquency rates for the mortgage industry overall, and 6.1% for prime non-agency RMBS transactions, according to Fitch.

The borrowers in the $343.5 million pool aren’t too shabby, either. They have an average FICO of 733, and own substantial equity with current loan-to-value ratios of just 71% on loans with average balances of $249.282.

Fitch's expected loss scenarios on the new portfolio are less than half those of other issuers such as Bayview Asset Management, Towd Point Mortgage Trust and Mill City Mortgage Loan Trust.

Fitch says the firm “benefits from a conservative loan sourcing strategy and use of robust analytics in its aggregation process.”

Among other credit metrics, the pool includes $15.8 million (4.6%, of the total) of deferred principal; there is a strong concentration of loans in California (33.4%) and a mix of fixed-rate and hybrid adjustable-rate terms.

The mortgages are serviced by Select Portfolio Servicing, a unit of Credit Suisse AG.

The capital stack also includes several tranches of Class M and Class B notes totaling $54.62 million. The top two tranches of the Class M series sized at $23.2 million carry provisional AA and single-A ratings from Fitch and DBRS; the remaining notes are unrated.

MetLife will retain a 5% vertical interest in each class of notes for risk-retention purposes.

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