Towd Point UK RMBS Focuses on Pre-Crisis Loans

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The UK’s Towd Point Mortgage Funding trust has issued its latest transaction consisting of a large swathe of pre-crisis home loans still beset by delinquencies, or encumbered by variable rates and second-liens.

Towd Point Mortgage Funding (TMPF) 2016-Granite2 Plc is a pool of loans that are primarily prime “terms & conditions” (T&C) loans that originated prior to 2008. The loans were originated by Landmark Mortgages Ltd. and/or its predecessors. Landmark is the former NRAM Ltd. “bad bank” entity created to hold the bad debt filtered out of Northern Rock Building Society when the UK bank was nationalized in 2010.

Over 90% are variable interest loans, and significant numbers of mortgages are in some sort of arrears, have borrowers with county court judgments, contain outstanding second-liens or have interest-only terms with an uncertain path to refinancing.

The deal consists of eight classes of floating rate notes, all with a long-term final maturity of August 2051. The collateral at the cut-off date for the pool had an outstanding balance of £447.9 million ($555.54 million) among 9,763 borrowers.

The tranche sizes are to be determined, but the triple-A rated Class “A’ series will comprise 86.25% of the finalized notes balance. The deal was rated by Moody’s Investors Service.

The other rated tranches include the Class B notes (with an ‘Aa2’ structured finance rating, making up 4.25% of the pool); Class C (‘A3’, 3% of the pool); Class D (‘Baa3’, 1.5%) and Class E (‘Ba2’, 1.25%). An unrated Class Z subordinate notes class as well as a Class X excess-spread tranche, an excess-expense certificate series and two classes of unrated deferred certificates that only receive proceeds as the Class X notes are redeemed.

The Class A notes are supported by 13.75% subordination, as well a liquid reserve fund that will be established as of a future step-up date to 1.7% of the current aggregate balance of the Class A and B notes.

This is the third TPMF transaction rated by Moody’s, comprised of T&C loans for homes in England, Wales and Scotland. More than 90% of the mortgages hold variable rates and 18.5% in arrears. T&C loans contain assignability restrictions or have limits on the variable rates charged on the loans upon transfer.

Nearly 55% of the loans are interest-only, which normally provides a level of risk that these loans are used by customers with limited financial flexibility. Moody’s noted that the Financial Conduct Authority’s recent review of lender behavior in the residential mortgage market could introduce restrictions on future refinancing opportunities for these UK customers, as well.  

The pool’s level of consumers with previous judgments for defaults is nearly 14%, another high-risk element introduced into the collateral. In addition, 10.8% of the loans include an unsecured loan balance which was used to fund an equity down payment on the house.  

However, most of the loans in the pool are heavily seasoned beyond 15 years, and have favorable loan-to-value ratios of just 52.9%.

After the completion of the transaction, Landmark will have placed over 99% of its existing assets into the securitization market.

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