As the close of the first quarter approaches, so does the closing date for the Mill City Mortgage Loan Trust, 2023-NQM2, a $325.4 million securitization of residential mortgage-backed securities tied to a collateral pool of business purpose mortgages.
A solid majority of the mortgages in Mill City transaction's collateral pool, about 56%, were made to investors who will rent the properties out or as a second home, according to Fitch Ratings, and this more or less overlaps with the percentage of the pool, 52%, that was underwritten to a debt service coverage ratio (DSCR) standard. The loans are exempt from the Consumer Financial Protection Bureau (CFPB)' Ability to Repay Rules and those of qualified mortgages.
Mill City Holdings, the deal sponsor, sourced the loans from a group of originators including HomeXpress, Excelerate Capital and Oaktree Funding.
Morningstar | DBRS, for its part, says all of the loans were originated after Jan. 10, 2014, so they are subject to certain ATR rules according to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this transaction the servicer, NewRez, or Shellpoint Mortgage Servicing, will fund advances of delinquent principal and interest until loans become 90 days, so long as the loans can be recovered, according to DBRS.
Both Fitch and DBRS list Barclays as the lead underwriter, essentially, while the Asset Securitization Report deal database lists Goldman Sachs as the manager. With such broad expertise at the helm of the deal, Mills City, 2023-NQM2, will issue notes and collect repayments through a senior-subordinate, pro-rata and sequential structure. This will provide subordination as a form of credit enhancement, the rating agencies suggest.
Some 584 loans are in the pool, extended to borrowers with credit profiles that are considered moderate, just one of several deal characteristics that Fitch considers potentially negative from a credit standpoint. For one, the loans have a weighted average (WA) model FICO score of 732, and a 50% debt-to-income ratio, Fitch notes.
The loans have about 10 months of seasoning on them, according to Fitch. They have an average loan balance of $557,301, and on a WA basis borrowers have reserves of $365,385 and a coupon of 6.7%.
As for ratings, Fitch intends to assign 'AAA' to the $208.1 million A-1 notes, the vast majority of the note balance. After that the A-2 notes through the B-2 notes get ratings of 'AA' to 'B'.
DBRS also intends to assign 'AAA' to the $208.1 million A-1 notes; and 'AA' through 'B' to the class B-2 notes.
