New Residential boosts quality in latest $493M RMBS "clean up"

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Based on rising FICO scores, high equity levels and low delinquency rates, New Residential Investment Corp. is marketing one of its strongest portfolios in two years of older performing and re-performing mortgage loans, according to presale reports.

New Residential Mortgage Loan Trust (NMRLT) 2017-4 is a pool of 3,500 loans backing the issuance of bonds totaling $493 million. Nearly all of the loans - which include prime, Alt-A and subprime - are current (96.1%) and have collateral characteristics that allowed one of the trust's lowest levels of senior-note credit enhancement among its 13 deals dating back to 2014.

The 2017-4 collateral pool has a current loan-to-average ratio of 49.2%, and as noted by Moody's Investors Service, the weighted average FICO of 721 and the relatively low delinquency rates (for 13-year-old loans) make it one of the safest NRMLT transactions that Moody's has rated in the past year.

The loans are well-seasoned with an average age of 13 years. As with its prior deals, New Residential purchases and repackages older loans in clean up calls from pre-crisis residential mortgage asset-backed deals being retired. The loans in the latest pool were all from Bank of America securitizations dated between 2003 and 2005.

The $493 million transaction offers $433 million in Class A bonds that have received preliminary AAA ratings from Moody’s and DBRS. The senior notes are split among tranches of varying interest rates, various interest-only series as well as exchangeable notes. The notes being issued with interest rates are between 3.25% and 4%.

The 12% enhancement is lower than the 18.6% of New Residential's previous transaction as well as five others dating back to the trust's second transaction in 2015.

All of the loans were acquired by NRZ Sponsor V LLC, a New Residential-affiliated vehicle that purchases outstanding loans from dated securitization trusts being terminated. Most of the loans (87%) will be serviced by Nationstar Mortgage. Because of the age of the loans, none are subject to the Consumer Financial Protection Bureau's ability to pay/qualified mortgage rules.

The REIT (through a majority owned affiliate) will hold a 5% vertical stake in each class of the securities to be issued for risk-retention purposes.

For the 2017-4 transaction, the average balance ($140,583) is considerably higher than its three other deals this year, which ranged from $106,565 to $115,632.
Nearly 16% of the loans have been modified, but most of the mods (65.5%) occurred more than two years ago.

Among weaknesses is the concentration (46.3%) of California-based loans in the pool, as well as some higher-than-expected delinquency rates in recent NMRLT deals, according to Moody's. Two transactions from 2016 already have 60-plus day delinquencies above 3%.

But more than 87% of the loans in the new pool have had clean payment history for the past two years.

Moody’s said based on the "upward trend" of recent delinquency rates of recent NMRLT transactions, it has assigned collateral losses of 1.8% for the new pool. Moody's projected 12-month projected default rate delinquency rates in the current pool is 5.61% for prime loans, 6.42% for Alt-A loans, and 12.83% for subprime.

The pool does not include any second-lien mortgages.

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