Starwood Non-Agency Lending, LLC is preparing a mortgage-backed securities (MBS) deal that will float $465.2 million in MBS through the Starwood Mortgage Residential Trust, 2021-4, in one of the increasingly rare transactions with Libor exposure.
Starwood Non-Agency Lending’s collateral consists of 24.5% adjustable-rate loans that reference the one-year Libor, according to Fitch Ratings. The remaining adjustable-rate loans reference the one-year Treasury and one-year secured overnight financing rate (SOFR).
Otherwise 30-year, fixed-rate and fully amortizing loans make up a majority of the loans, 59.3%, according to Fitch.
The pool consists of mixed types of loans. About 14.2% of the loans in the pool are designated as qualified mortgages, while another 34.9%, roughly, are designated as non-qualified mortgages. Fifty-one percent, roughly, are investment properties not subject to the Ability to Repay (ATR) rule, Fitch said.
With a balance of about $465.3 million, some 915 loans collateralize the certificates. Third-party mortgage originators account for the large majority of originators, including Luxury Mortgage Corp., HomeBridge Financial Services, Impac Mortgage Corp., and United Shore Financial services. Those originators account for 83.3% of the loans in the pool, Fitch said.
Fitch also noted that 96 loans are in a geographic area that the Federal Emergency Management Agency (FEMA) has declared a disaster area for individual assistance, according to Fitch. As of September 8, however, the servicers on the deal confirmed that none of the 96 homes had suffered damage, so the homes’ presence on the deal is not likely to impact the transaction, Fitch said.
Various third-party originators, which each contributed less than 10% of loans to the pool, Fitch said, originated the other 16.7% of loans.
Borrowers have strong credit profiles, with a weighted average FICO score of 734, and an original, combined loan-to-value of 68.3%. According to the rating agency, the typical debt to income ratio (DTI) is 46%. Yet Fitch assumed a higher DTI, 55%, for asset depletion loans and for converting the debt service coverage ratio to a DTI for the DSCR loans.
In terms of geographic concentration, 48% of the loans in the pool are on properties in California. Meanwhile the largest concentration by MSA is the Los Angeles-Long Beach-Santa Ana, California, with 27.4%. The second-highest MSA representation is an area that covers New York, Northern New Jersey, Long Island, and Pennsylvania, making up 23.5%.
Fitch expects to assign a range of ratings, including ‘AAA’ ratings to the $357.5 million class A-1 notes, and ‘BB’ to the $12.5 million B-1 notes.
All of the notes have a final maturity of August 2056.
