In its inaugural securitization, Vista Point Mortgage is aggregating a collection of mostly non-conforming mortgages that it acquired from several originators, with the largest one also new to the market.
The $439 million RMBS transaction pools 902 mortgage loans from several mortgage originators, including Hometown Equity Mortgage and Oaktree Funding Corp. Just over half the loans are non-conforming and, therefore, do not meet the guidelines set for government-sponsored enterprises.
Mortgage loans may be nonconforming for a variety of reasons ranging from high-FICO and high-income borrowers who opt for special terms, to nonprime, riskier borrowers.
In its June 19 pre-sales report, DBRS Morningstar said compared to other private-label deals, Vista Point and its largest loan originator — Hometown Equity Mortgage, with 39.8% of the pool — have “limited performance history.”
Consequently, "DBRS considered the performance history of other rated [private-label] transactions with loan attributes similar to the current pool,” and adjusted the expected losses upward across all rating categories.
S&P Global Ratings noted in its pre-sales report that the transaction is secured by single-family residential properties, planned-unit developments, condominiums, and two- to four-family residential properties.
Vista Point Securitization Trust 2020-1’s strengths, according to DBRS, include generally improved underwriting standards for prime and non-prime mortgages, and robust loan attributes in terms of credit scores, household income and liquid reserves.
DBRS also points out several challenges, including the loan-servicer Specialized Loan Servicing’s potential financial difficulties, a sequential pay structure diverting excess cash to cover losses, and a weaker representations and warranties framework.
DBRS notes only 13 mortgage loans, or 2.1% of the pool balance, have entered forbearance programs so far, but that could change if the pandemic continues.
“If the proportion of forbearance loans in the pool rises, the proceeds available for distribution to the Certificate holders could be reduced significantly during the related forbearance period,” DBRS says.
DBRS analysts held a conference call about the forbearance issue with Vista Point executives, who explained it had implemented, along with its servicer, a review process requiring borrowers to submit applications documenting income and hardships.
“The process helps to ensure borrowers that genuinely need payment relief may receive such relief and those that can make payments but use the payment relief to conserve cash may not,” according to DBRS.
