Mill City Holdings is returning to market with its fourth securitization of re-performing residential mortgages, this time with a sliver of home equity lines of credit (HELOCs) added to the mix of collateral.

The $335.9 million Mill City Mortgage Loan Trust 2017-1 will issue three series of notes: $241.7 million of Class A1 notes carry a preliminary AAA rating from DBRS. The Class A notes have 38.85% of credit enhancement.

DBRS also rates the Class M1/M2/M3 series totaling $80 million, as well as two subordinate Class B1/B2 note classes totaling $34.2 million. No ratings were issued for the $20.36 million Class B3 tranche nor the $18.98 million Class B4 series.

Mill City will hold a 5% eligible vertical equity interest slice in each class of notes to meet federal risk-retention standards for RMBS securities.

The notes are supported by 1,660 underlying mortgages with a principal balance of $395.3 million. All of them were once distressed (either because borrowers were delinquent or in bankruptcy) but have returned to current status. DBRS reports that 58.9% have been modified and have been current for at least two years; nearly 62% have 24-month clean slates when removing delinquencies related to servicing transfers.

The collateral is of higher higher quality than other recent distress/re-performing pools rated by the rating agency. Only 28 of the loans were involved in prior bankruptcies, and approximately 43.3% of the mortgages have no 30-day delinquencies for the past three years.

Home equity lines of credit account for roughly 16.5% of the collateral; since borrowers are eligible to make additional draws, the percentage could increase following the closing of the transaction.

The transaction is among the smallest deals managed by Mill City, which acquired ownership interests in re-performing mortgage securitizations from CarVal Investors two years ago. The company’s lone 2016 transaction was funded by $504.5 million in notes - also topped by a triple-rated tranched - backed by 1,986 former delinquent or defaulted mortgages with an outstanding balance of $565.4 million.

The loans are serviced by either special servicer Resurgent – d/b/a Shellpoint Mortgage Servicing – covering 68.9% of the pool, or Fay Servicing (31.1%). Fay is a specialist is non-performing/re-performing loans.

Since re-emerging as an asset class in recent years, RPL/NPL securitizations from Mill City, Cerberus Capital Management's Towd Point, Citigroup Mortgage Loan and New Residential have been strong performers compared to initial expectations, according to a report last November by Moody's Investors Service. Per Moody's, 60-day plus delinquencies have totaled less than 6% across the 19 deals to that point from those RPL issuers. 

Moody's has rated 22 deals since 2015, with a total volume of $14.19 billion.

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