Residential Investment Corp., a real estate investment trust (REIT) is sponsoring a $351.4 million residential mortgage-backed securities (RMBS) deal, which is being secured by a pool of non-qualified (QM) mortgages.
Morgan Stanley, Amherst Pierpont Securities, Credit Suisse Securities, Goldman Sachs and others will be initial purchasers on the transaction, called New Residential Mortgage Loan Trust, 2022-NQM2, or NRMLT 2022-NQM2.
The notes will be issued through a sequential payment structure, but the class A tranche will not be prioritized over all the other classes, according to Kroll Bond Rating Agency (KBRA). The NRMLT 2022-NQM2 payment provides for a waterfall of distribution to all of the notes at all times, including classes A-1 through A-3. Also, the principal remittance amount will be the first to pay any interest shortfalls for classes A-1 and A-2 certificates before paying any principal to those classes, sequentially, until they are fully repaid.
Credit enhancement includes excess spread. Every month, excess cash flow available up to the amount of cumulative realized losses and current period will be used to pay down the senior-most classes of notes outstanding, on a sequential basis, KBRA said.
KBRA expects to assign ‘AAA’ ratings to the $283.8 million class A-1 notes, with a coupon of 2.9%. Other ratings range from ‘AA+’ on the $18.6 million A-2 notes to ‘B-’ on the $6.5 million class B-2 notes.
The amounts paid will reduce or prevent write downs that otherwise would have occurred on the most junior notes. Using excess spreads in this way will preserve and restore subordination, as long as such funds are available.
A pool of 589 newly originated mortgages will collateralize NRMLT 2022-NQM2, the rating agency said. Almost all of the mortgages, 99.3% are fixed-rate mortgages, and the rest are adjustable-rate. About 16.9% of the pool has an interest-only period. About 74.2% of the loans are non-QM, while the rest are categorized as non-qualified mortgages, while the remaining loans are designated as exempt. They were originated for business purposes. Borrower income documentation includes both 12-month and 24-month bank statements, at a ratio of 37.4% and 48.1%, respectively.
The average balance on the loans, all of which are first liens, is $596,530.
Self-employed borrowers account for 69.4% of the mortgage balance. Overall, the borrowers have a non-zero weighted average median annual income of $256,146.
The deal is slated to close on March 4.
