A former U.K. subprime mortgage lender is sponsoring its first securitization of "buy-to-let" mortgages to prime borrowers.
The £310.3 million transction, Twin Bridges 2017-1, is backed by 965 mortgages with a total balance of £243 million underwritten to U.K. landlords by Paratus AMC Ltd., formerly known as GMAC-RFC.
Moody’s Investors Service expects to assign an AAA rating to the £237.8 million senior tranche of notes to be issued, which benefits from 20% credit enhancement.
Natixis is the lead arranger.
Among the strengths of the deal, according to Moody's, is the fact that the the weighted average original and current loan-to-value ratios are around 70%, in line with the broader buy-to-let sector, with nearly three-quarters of the borrowers having a current LTV of between 60-80%.
Also, none of the loans are in arrears.
However the deal has a prefunding feature; up to £47.5 million of loans may be added to the pool on or before Dec. 12, 2017. This potentially introduces additional risks as the asset quality could deteriorate compared to that at close.
Also, the vast majority (96.5%) of loans pay only interest, and no principal, for their entire terms.
Moody’s expects losses over the life of the deal to reach 2.5% of the pool; that's similar to its expectations for other U.K. buy-to-let RMBS.
The deal is the latest in a recent wave of buy-to-let securitizations. Others this year include Charter Court Financial Services, which sold bonds backed by investor mortgages in a £484.5 million transaction issued in April. That same month, Blackstone and Prudential went to the asset-backed market with £12 billion in buy-to-let loans auctioned off from the British government, which absorbed the loans following the nationalization of original lender Bradford & Bingley.
And in February, Capital Home Loans Ltd. sponsored Towd Point Mortgage Funding 2017-Auburn 11 featuring buy-to-let loans that CHL (owned by funds managed by Cerberus Capital Management) had originated prior to the crisis.
The flurry of deals comes as the Bank of England’s Prudential Regulation Authority has been stiffening requirements for lending to landlords. Regulators have levied higher stamp duties on owners of second homes since April 2016. This followed the curtailment of mortgage property tax relief for investor owners in 2015. Both measures were designed to dissuade investor-owned purchases that fuel higher home prices.
In September, according to a report from bond rating agency DBRS, the authority will enact more underwriting rules on borrowers with multiple properties.
Paratus, formerly GMAC-RFC, discontinued lending during the financial crisis. It has approximately £2.5 billion in residential mortgage loans under management. The company is privately held by funds managed or advised by private equity firm Fortress Investment Group.
While Twin Bridges is its first securitization of loans to landlords, the company earlier this year sponsored a securitization of non-conforming legacy GMAC and Victoria Mortgages loan mortgages it services that were originated a decade ago. Both U.S.-based GMAC and Victoria ceased originations in 2009. GMAC was later fined by the Financial Services Authority over its excessive charges on and "mistreatment" of delinquent customers.