Morgan Stanley’s mortgage acquisition and trading arm is sponsoring only its third prime-jumbo securitization of first-lien residential loans since the financial crisis.
According to ratings agency presale reports, Morgan Stanley Mortgage Capital Holdings will place 345 high-balance, recently placed mortgages with a collective balance of $308.5 million into a collateral pool managed by the Morgan Stanley Residential Mortgage Loan Trust 2020-1.
The super-jumbo loans will secure nine classes of bonds, including a senior-note capital structure of a $289.98 million Class A-1 tranche of interest-only certificates, a $271.47 million Class A-2 super-senior tranche and a Class A-3 $18.5 million senior-support tranche.
All of the Class A notes have preliminary AAA ratings from Kroll Bond Rating Agency and Fitch Ratings.
Morgan Stanley is also marketing six classes of subordinate notes.
The loans carry an average balance of $894,164 for borrowers with higher-prime FICOs of 776. The borrowers not only have high annual household incomes of $384,480, but median free cash flow of $10,258 and liquid reserves averaging $434,288, which is substantially higher than for pools of borrowers in other recent prime-jumbo pools sponsored by JPMorgan, Flagstar Bank and Redwood Residential.
Nearly all of the loans, serviced by Nationstar Mortgage, were recently originated within the last six months before being purchased by Morgan Stanley. All are considered qualified mortgages under the Consumer Financial Protection Bureau's ability-to-repay standards.
While Kroll noted in its presale report that the post-COVID-19 originations might “benefit from positive selection and tightened employment verification standards,” the self-employment designation for 29.4% of the borrowers exceeds the concentrations from most peer transactions this year. “Generally, self-employed borrowers were more severely affected by the pandemic due to business closures and other forms of lockdowns,” according to Kroll.
Morgan Stanley’s deal, once closed, would add to a recent surge of prime-jumbo RMBS transactions sponsored by MetLife, JPMorgan Chase, American International Group, Redwood, Goldman Sachs, and Wells Fargo since mid-October. Prime-jumbo sponsors have issued approximately $17.18 billion in volume across 42 deals this year, according to data from Finsight.
