New Residential is marketing a $260.0 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. 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.

This is the sponsor's first nonperforming deal of 2016; it completed two in 2015.

The transaction is comprised of 1,789 primarily 30-year, fixed-rate loans (92.9% of the trust, by balance) with a weighted average (WA) FICO score of 697, WA current loan to value (LTV) ratio of 60.7%, and a WA seasoning of 150 months. The aggregate outstanding balance of the loans is $261,015,733 (which includes deferred principal of $5,247,244).

Nearly three quarters of the loans (74.2%) are highly seasoned loans that are performing and were never modified; the remaining 25.8% are seasoned loans that have been modified but are now current.

Overall, the credit quality is weaker than of the collateral backing New Residential’s two previous transactions, due to its lower WA FICO, higher WA current LTV, higher percentage of modified loans, and poorer performance over the 24 months leading up to securitization. In addition, the latest deal has a larger percentage of subprime loans: 24.6% of the pool.

However, these risks are partially offset by the fact that the loans backing the latest deal are more seasoned, over 12 years on average; by comparison, the collateral backing New Residential’s previous deal, completed in November, had at least eight years of seasoning.

Nationstar Mortgage will service 26.3% of the loans underlying the pool, Ocwen Loan Servicing will service 65.0% of the loans and PNC Bank will service 8.6% of the loans in the pool. Nationstar Mortgage LLC will also serve as a master servicer of the transaction.

Moody’s has assigned a preliminary ‘Aaa’ rating to a tranche of class A notes that benefits from 18% subordination and two more tranches of class A notes with 16.7% subordination. There is also a tranche of class A notes with 12.45% subordination provisionally rated ‘Aa1.’ Also on offer are eight tranches of class B notes with ratings that range from ‘Aa2’ to ‘B2.’  

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