The PSMC 2019-3 Trust is bringing $298.6 million in notes to the market, backed by residential mortgages rounded up by subsidiaries of American International Group.
The deal is fundamental in its structure and assets. PSMC’s is securitizing a pool of 414 prime, fixed-rate mortgages and the deal operates on a traditional structure of senior-subordinate, shifting-interest rates, according to Fitch Ratings, which expects to issue ratings.
Very high-quality, 30-year, fixed and fully amortizing Safe Harbor Qualified Mortgage loans, which have been seasoned for at least three months, are securing the notes. Borrowers have strong credit profiles, with a weighted average original FICO score of 777, and about 80% of the loans have a borrower with an original FICO score above 750.
Borrowers on the underlying loans also appear to have substantial equity in their properties, as the original weighted average CLTV is 69%. The pool of loans is geographically diverse, sparing the deal of any geographic penalty. California, as a state, accounts for about 42% of the pool, while and the top three MSAs — San Francisco, 15%, Los Angeles, 11.5%, and Seattle, 6.2% — accounted for 32.7% of the pool.
In one of the positive ratings drivers, Fitch applied credit to the deal, because AMC Diligence performed third-party due diligence on 100% of the loans.
The structure utilized a top-tier representation and warranty framework, which Fitch notes is consistent with Tier 1 quality. For this, Fitch lowered its loss expectations at the "AAA" level by 16 basis points.
PSMC’s notes are uniformly expected to have a final maturity of November 2049, and with such a long timeline, the deal was structured to address tail risk. As the pool seasons, leaving fewer loans outstanding, PSMC 2019-3 Trust will maintain a subordination floor of 1.25% of the original balance. That amount, should shield the largest loans from defaulting at the "AAA" level’s average loss severity of 40.83%.
The trust provides expenses for indemnification and costs of arbitration, which will be funded by the net weighted average coupon on the loans, according to Fitch. Also, the expenses that the trust can pay are capped at $300,000 annually, and can be carried over each year — subject to the limit — until expenses are paid in full.
All of the classes enjoy a stable outlook, and the senior classes, A-5, A-9, A-19, A-20, A-21,A-22, A-X1, A-X8 and A-X-9 received "AAA" ratings. The B-1 and B-2 classes received ratings of "AA" and "A," respectively.
