RATE Mortgage Trust, 2021-J1, residential mortgage trust, is preparing to issue notes secured by a light portfolio of prime and fixed-rate mortgages structured with low operational risks, strong credit enhancement and tight performance triggers.
Borrowers on the underlying loans have strong credit ratings, with a weighted average FICO score of 784 and a debt-to-income ratio, or DTI, of just 31%. Also, 93.4% of the underlying 421 loans in the pool were extended to borrowers who used the property as a primary residence, while the rest were secondary homes, according to FitchRatings.
On a macro basis, the trust is expected to benefit from a more positive economic outlook. Fitch revised its U.S. GDP growth expectation to 6.2% for 2021 and 3.3% for 2022, along with much better unemployment forecasts, which puts unemployment at 5.8% and 4.7% for 2021 and 2022, respectively, down from 8.1% in 2020.
Guaranteed Rate, Inc., is the originator and sponsor on the RATE Mortgage 2021-J1 deal. The collateral has other features that are not as tight as other prime mortgage-backed securities (MBS) transactions, from a credit perspective. The loans were seasoned for just 3.1 months, lower than the 8.8 months in the 2018-2021 prime industry average. The weighted average original LTV was 70.8%, a few ticks higher than the 68.9% in the 2019-2021 prime industry average. The average loan balance in RATE Mortgage is $882,430, also higher than the $750,760 in the industry average.
Bank of America Securities is the lead underwriter on RATE Mortgage 2021-J1. The structure differs from similar deals in a couple of ways. The deal has a shifting-interest structure, which determines senior principal distributions by comparing the senior bond size to the collateral balance. The 2021-J1 trust, however, compares the senior balance to the collateral balance minus any stop-advance loans.
ServiceMac is the servicer on the deal, while Wells Fargo Bank is master servicer and securities administrator.
Also, while other transactions treat stop-advance loans similarly, RATE Mortgage is arranged so that liquidation proceeds are allocated to integrate before principal. As a result, Fitch said, it included the full interest carry in its loss projections. Also it views the risk of permanent interest reductions as lower than other programs with a similar feature.
