New Residential is marketing a $519.7 million securitization of re-performing mortgage loans, according to Moody's Investors Service.
The real estate investment trust acquired the loans by exercising “cleanup calls” on private label mortgage securitizations. As a servicer, it has the right to dissolve these trusts when at least 90% of the collateral has been paid down, making the deals uneconomical to service.
New Residential Mortgage Loan Trust 2015-2 is the sponsor's second deal this year; the first, NRMLT 2015-1, was issued in June. The sponsor has cleanup call rights on approximately $200 billion of securitization, of which it expects to exercise at least $100 billion. When calls are exercised, the performing loans are sold to New Residential's own securitization trust and the REIT holds the nonperforming loans on its balance sheet.
Most of the loans called by New Residential were originated between 2003 and 2007 and benefit from at least eight years of seasoning.
The collateral backing NRMLT 2015-2 consists of 4,054 loans that have a weighted average seasoning of 12.4 years. The loans’ performance history, including defaults, prepayment, modification and loss severity, are consistent with Alt-A mortgage loans issued before 2004, according to Moody’s.
The loans in the pool have a current weighted average FICO score of 715. The majority of borrowers have updated FICO scores as of April 2015.
Loans in the pool have a relatively low WA loan-to-value ratio of 48.39%, based on the updated value of properties in the pool. These values were determined using an HDI index or an updated broker price opinion obtained by a third party. The majority of borrowers have updated FICO scores as of April 2015.
Moody's assigned preliminary 'Aaa' ratings to three tranches of notes to be issued by the new trust, one of which (A-1) benefits from 15% credit enhancement and two (A-3, A) that benefit from 11% credit enhancement. There is another tranche (A-2)with 11% credit enhancement that is rated one notch lower at 'Aa1'. Also on offer are four tranches of B notes that will be rated from 'Baa2' to 'B2'.
Moody's expects losses on the pool to average 1.60% and reach 10.00% at a stress level consistent with the 'Aaa' ratings on the senior classes.
The rating agency noted in the presale report that the transaction's shifting interest structure offers less protection to the senior bonds compared with a pure sequential pay structure, because subordinate bonds receive only scheduled principal and are locked out of receiving unscheduled principal or prepayments for the first five years. By comparison, in a sequential pay structure the subordinate classes do not receive principal until the senior classes are re-paid in full.
"In a scenario where losses are back-ended, there may not be sufficient credit enhancement to cover losses," stated Moody's.
Nationstar Mortgage and Ocwen Loan Servicing are the primary servicers for the transaction; Nationstar also acts as the master servicer.