Shellpoint Partners LLC, the home lender founded by mortgage-bond pioneer Lewis Ranieri, priced its first securitization after restructuring the senior tranche on the back of investor requests.
Michele Patterson senior director of Kroll Bond Ratings RMBS group said that Credit Suisse, the lead manager on the deal, broke up the $235 million senior A class, triple-A tranche into a super senior and support senior.
The A1 and A2 tranches are now super seniors supported by the A3 tranche. The credit enhancement on the super senior is 20% and the support on the A3 is 10.10%.
The restructure was motivated by investor requests. Bloomberg reported on Thursday that investors were looking for the extra credit support on the back of concerns that 17% of the loans in the mortgage pool were composed of foreign borrowers.
The risk associated with these borrowers includes a lack of a U.S. credit history and the potential to leave the U.S. without fulfilling their mortgage obligation.
“The fact that they are foreign nationals in and of itself isn’t a concern, the concern is the portion of these borrowers that don’t have a credit score,” explained Patterson. She said only 4% of the loans originated for foreign nationals, didn’t have a credit score.
Standard & Poor’s said in its presale report that Shellpoint uses an international credit report to collect data from a large number of countries. This data is used to evaluate each borrower and verify credit information under their underwriting guidelines.
Foreign national assets in RMBS deals aren’t a new thing. Patterson said that Redwood Trust for example allows for these assets to be included in their mortgage pools. The difference is that the issuer doesn’t allow for a large percentage and Redwood restricts foreign national to having credit scores.
What’s also different in the Shellpoint shelf RMBS is that the originator for the loans, Shellpoint subsidiary New Penn Financial, markets specifically to this area of the market.
New Penn has an alternative loan program meant for foreign national borrowers. The guidelines for this program include more limitations than those it imposes for U.S. borrowers. A loan to a foreign national borrower has a $650,000 maximum loan amount, with a maximum LTV of 65% for purchase loans and 55% for refinances, which are also limited to rate and term refinances only.
“Some people feel that because you are a foreign national you can more easily walk away from your property and therefore the default risk is higher, but that can be said of any mortgage,” said Patterson. “Foreign borrowers aren’t any more risky.”
Instead Patterson said that the fact that these borrowers have a significant amount of equity in their property makes them just as likely as U.S. borrowers, to not walk away from their mortgage obligations.