New Residential Investment Corp. is marketing $285.39 million of bonds backed by a pool of reperforming/nonperforming home loans in its 21st securitization of seasoned, pre-crisis mortgages.
New Residential Mortgage Loan Trust 2019-1 will issue Class A and Class B notes that will be offered in various term, exchangeable and interest-only varieties. The Class A tranches total $175 million that carry 38.25% credit support. Those notes, along with a portion of the Class B notes totaling $32.6 million, carry preliminary AAA ratings from Morningstar Credit Ratings and DBRS.
All of the loans were acquired from five servicers, the largest proportion from Ocwen Loan Servicing (64% of the pool) and Nationstar Mortgage (28.8%). The remainder were purchased from Select Portfolio Servicing, Gay Servicing, and New Penn Financial (d/b/a Shellpoint Mortgage Servicing).
The transaction collateral consists of well-seasoned, legacy mortgages that have a weighted average seasoning of 164 months (13.7 years). The large majority are fixed-rate, first-lien loans, but the pool includes balloon (43.1% of the pool) and step-up rate loans (5.6%), as well.
The loans are from across the U.S., but 38.4% of them are concentrated in California, New York and Florida.
In a presale report, DBRS said the 2,484 loans in the pool were “generally of better quality than other distressed or re-performing portfolios” because of the healthy current loan-to-value ratios that average 87.3% (including deferred amounts of the loans). Also, 95.8% of the loans (with an average balance of $114,086 at a rate of 4.4%) are current and the 30.5% share of loans with original interest-only terms have transitioned into amortization status.
The transaction also benefits from a pledge of servicer advances of principal and interest on defaulted mortgages, “to the extent” those advances are considered recoverable, DBRS noted.
But the age of the loans means most (97.7%) are exempt from ability-to-pay regulations and qualified mortgage safe harbor provisions, and 75.3% have been previously modified – a much higher level than four of five recent comparable New Residential transactions, which had concentrations ranging from 35.8%-53.9%. The weighted average borrower FICO is 669, which compares unfavorably to New Residential’s most recent transactions featuring mostly prime borrowers with average pool scores of 703 and 739.
Morningstar and DBRS did not give the pool credit for due-diligence review since less than 51% of the loans were reviewed for regulatory compliance. Only 13.6% were reviewed for payment history, 14.2% for data integrity and 29.5% had a title/lien review before being pooled into the deal.
That resulted in both agencies deriving higher net loss expectations than the pool otherwise would have received. DBRS assigned a stress-scenario loss expectation of 20.25%, while Morningstar projected 22.28%, both of which are still in line with projections for recent NRMLT transactions (2018-5 and 2018-3) with similar credit characteristics.
Those stress scenario loss expectations have far exceeded the cumulative losses experienced in New Residential deals thus far, since the REIT began pooling legacy mortgages in 2014. According to DBRS, the losses have ranged from 0.4% to 1.7% for deals issued in 2014, and 0%-0.5% for 2015-2018 deals.
