Towd comes to market with $338.5 million RMBS

Bloomberg News

Towd Point Mortgage Trust 2023-CES1 (TPMT 2023-CES1) is issuing residential mortgage-backed notes backed by a pool of closed-end second lien (CES) loans.

The collateral pool has a total balance of $339 million consisting of 4,678 loans originated by PennyMac (28.9%), Rocket Mortgage (45.2%), and SpringEQ (25.9%). PennyMac, Rocket and Specialized Loan Servicing will service the loans.

According to Fitch Ratings, the pool consists of new-origination CES loans, seasoned approximately four months, a relatively strong weighted average model credit score of 738, a 37% debt-to-income ratio (DTI) and a moderate sustainable loan-to-value (LTV) of 79%. Roughly 95.2% of the loans were treated as full documentation in Fitch's analysis. Fitch views the home price values of this pool as 8.2% above a long-term sustainable level. The two largest concentrations of loans are in California (15.7%) and Florida (13.1%).

Second liens receive loan proceeds only after the first lien holder has been fully repaid, including the reimbursement of servicing advances, according to the Kroll Bond Rating Agency (KBRA).

FirstKey Mortgage (FKM) is the sponsor, seller and asset manager. According to Fitch, FKM was founded in 2013 and is owned by funds managed by affiliates of Cerberus Capital Management. With FKM's involvement, Cerberus has issued approximately $53 billion in U.S. RMBS since 2015. In February 2016, FKM created a new business line, global structured finance, to act as the sponsor, seller, and representations and warranties (R&W) provider for the Towd Point Mortgage Trust securitization program.

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Towd Point HE Trust 2023-1, from FirstKey, contained 69.1% closed-end, second fixed-rate residential mortgage loans, and 30.9% HELOC, adjustable-rate loans. The underlying pool was lower at $294.6 million for 3,394 loans, with a larger loan balance of $86,801 versus $72,370 for TPMT 2023-CES1. Seasoning was five months compared to 4.1 for TPMT 2023-CES1, and weighted-average FICO was lower at 728 versus 738.

TPMT 2023-CES1's distributions of principal and interest (P&I) and loss allocations are based on a traditional senior-subordinate, sequential structure. The sequential-pay structure locks out principal to the subordinated notes until the most senior notes outstanding are paid in full, Fitch says.

Fitch expects to rate the class A1 notes ($259.66 million, coupon 7%, credit enhancement (CE) 23.3%) as AAA, class A2 ($22.01 million, coupon 7.25%, CE 16.8%) at AA-, and class M1 ($14.9 million, coupon 7.5%, CE 12.4%) at A-.

KBRA expects to rate class A1 at AAA, class A2 at AA+ and class M1 at A. 

The transaction is expected to close on July 28, 2023, and the final legal maturity date for all classes is July 2063.