Credit Suisse private-label RMBS prices despite ratings snag
[Update 2: Clarifies Credit Suisse as issuer, confirms deal priced]
An attempt by Credit Suisse (CS) to bring a private-label residential mortgage-backed securitization, backed mainly by MetLife loans, to market priced successfully on Friday despite a ratings snag.
Fitch Ratings was not asked to rate the deal, only to provide its opinion, and added that credit risk on the RMBS is too great for its highest structured finance rating. However, competing ratings agencies Standard & Poor's and DBRS assigned AAA to several tranches of the deal.
Eighty-two percent of the loans are originated by MetLife Home Loans in the deal. The remainder is sourced by Quicken Loans (11%) and PHH Mortgage (7%). Redwood Trust (RWT) also successfully brings private-label RMBS to market. Wells Fargo Bank will serve as master servicer, and U.S. Bank National Association will serve as trustee.
Credit Suisse titled the deal CSFB Mortgage Securities Corp. 2012-CIM1, and successfully priced Friday. For its part, Fitch sees too much risk in the underlying collateral and not enough support in case performance wanes. Typically, two ratings agencies are needed to successfully market a RMBS as AAA.
"In the geographic areas where the mortgage loans are located, Fitch currently assumes home prices will decline a further 11.5% on average before reaching a sustainable level," Fitch said in a statement.
Credit enhancement, such as overcollateralization, would be necessary to mitigate the risk of house prices falling in the RMBS pool.
Fitch also cast doubt on the deal's representation and warranty enforcement mechanisms.
"This transaction does not provide for binding arbitration to resolve breaches on the MetLife-originated loans. Fitch acknowledges the financial strength of the provider’s parent (stable)," Fitch said. "However, Fitch also believes that the lack of this provision, or an alternative, could result in extended resolution timelines and higher costs should MetLife decide to contest repurchase requests."
Other concerns such as MetLife’s limited operating history, Mortgage Electronic Registration Systems recording and the transfer of servicing for the deal’s first distribution date also factored into Fitch’s analysis," the rating agency said.
According to DBRS, the loans are mainly seasoned first-lien, fixed rate mortgages secured by one- to four-family residential properties. As of the cut-off date on March 1, 2012, the loans had an aggregate principal balance of approximately $741,939,430, a weighted-average mortgage rate of 4.94%, an updated FICO score of 760 and a original combined loan-to-value ratio of 70.6%.
DBRS broke down their ratings below:
-- $ 436 million Class A-1 rated at AAA (sf)
-- $ 436 million Class A-IO-1 rated at AAA (sf)
-- $ 246.6 million Class A-2 rated at AAA (sf)
-- $ 246.6 million Class A-IO-2 rated at AAA (sf)
-- $ 13.7 million Class B-1 rated at AA (sf)
-- $ 11.5 million Class B-2 rated at A (sf)
-- $ 12.2 million Class B-3 rated at BBB (sf)
-- $ 10.4 million Class B-4 rated at BB (sf)