New Residential readies its 1st non-QM resi mortgage bonds

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New Residential, a regular issuer of bonds backed by nonperforming and reperforming mortgages, is readying its first deal backed by newly originated mortgages, according to Fitch Ratings.

It is also the first residential mortgage securitization Fitch has rated that is backed entirely by loans originated by New Penn Financial since 2013.

And while New Penn has a history of originating prime jumbo loans - mortgages too big to qualify for financing from Fannie Mae or Freddie Mac - the 581 loans backing this deal, the $310.74 million New Residential Mortgage Loan Trust 2018-NQM1 mainly non-qualified mortgages as defined by the Ability to Repay Rule. Approximately 73.8% of the pool are designated as NQM and 1.7% and 24.5% are investor properties and, thus, not subject to the Ability to Repay Rule.

About 28% of the pool fall into the Non-QM category because the borrowers had a DTI above 43%, with roughly 4% of the pool having a DTI over 50%; however the high DTIs are mitigated by strong FICOs, clean pay histories and low LTVs, according to Fitch.

Also, some borrowers in the mortgage pool benefited from liquid reserves, which are expected to help mitigate the risk of a temporary disruption in income. On average, borrowers in the pool were able to document over $234,520 in liquid reserves.

Fitch expects to assign an AAA to the senior-most class of A-1 notes, which benefit from an unusually high level of credit enhancement of 32.2%. The class A-2 notes are rated AA and have 25.4% credit enhancement; the class A-2 notes are rated A and have 12.8% enhancement.

This is explained by the transaction's modified sequential payment structure, whereby all principal remitted is distributed pro rata solely to the class A notes (classes A-1, A-2 and A-3) after taking into account any current or unpaid interest shortfalls. This reduces the initial subordination of the A-1 notes.

Shellpoint, rated ‘RPS3+’/Stable by Fitch, will be the primary servicer for the loans. Nationstar/Mr. Cooper, rated ‘RMS2+’/Stable, will act as master servicer.

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