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Mill City's next RPL RMBS features higher exposure to HELOCs

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Mill City Holdings’ next offering of reperforming mortgage bonds contains a slightly larger portion of home equity lines of credit than its previous deal, completed in June.

The $433.8 million Mill City Mortgage Loan Trust 2017-3 is a securitization of 1,665 loans, many of which were once delinquent but are now making timely payments, according to rating agency presale reports.

The loans are approximately 123 months seasoned, in 24 loans to borrowers currently in bankruptcy. Approximately 49.1% of the pool has not missed a payment for the past 24 months, 78.4% for the past 12 months and 88.2% for the past six months.

Approximately 11.51% of the collateral are HELOCs, of which 22.50% of the borrowers are currently eligible to make draws up to their credit limit. Another 64.36% of the HELOC borrowers have had their credit line temporarily frozen, either because the home’s value has declined, or for some other reason; the remaining 13.14% have their credit lines permanently frozen.

By comparison, only 6.2% of the collateral for the previous deal, MCMLT 2017-2, completed in June, were HELOCs. However, a smaller portion of those HELOCs, 1.9%, were eligible to make cash withdrawals against their equity.

However, Mill City's first deal of the year had a higher percentage of HELOCs, 16.5%.

In the event that all of the temporarily frozen HELOCs backing the latest deal are unfrozen, the maximum amount of draws available to the borrowers is $4.5 million, or approximately 1.05% of unpaid principal balance at closing. If a borrower of a HELOC loan makes a draw, the servicer will be required to fund the draw and will be reimbursed through a HELOC reserve account and in some cases, from Class D certificates, which are not being offered to investors.

In addition, approximately 9.80% of the loans are originated on or after Jan. 1, 2010, and approximately 2.70% of the loans have a negative amortization feature.

Moody’s expected losses on MCMLT 2017-3’s collateral pool average 10.20%, in its base-case scenario.

Both Moody’s and DBRS expect to assign triple-A ratings to the senior tranche of notes, which benefits from 35.75% credit enhancement. That’s slightly higher than the 34.45% credit enhancement on the comparable tranche of notes issued in the prior deal.

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