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Investments

Shellpoint Partners first RMBS deal carries geographical risk

Specialty finance firm Shellpoint Partners debuted on the private-label residential mortgage-backed securitization scene Wednesday, becoming one of a few issuers in this segment of the market.

Lewis Ranieri’s company is bringing Shellpoint Asset Funding Trust 2013-1 to the sector, reporting a total unpaid principal balance of $261.6 million when assessing the first planned transaction. Additionally, a total loan balance of $587.8 million is expected. 

Fitch Ratings pre-rated the Shellpoint deal, with the expected outlook slated as 'stable,' giving the deal’s tranches expected AAA ratings. 

Kroll Bond Ratings also pre-rated the deal, giving the majority of the deal’s tranches expected AAA ratings. 

Both credit ratings agencies highlighted the geographic concentration of the deal, with 63% of the properties located in California. Thirteen percent of the properties are located in San Jose, while another 12% and 9.5% are situated in Los Angeles and San Diego, respectively. Assets in California are generally considered more risky due to the state's higher home prices and volatile market dynamics.

"The pool has significant regional concentrations that resulted in an additional penalty of about 15% to the pool’s lifetime default expectation," Fitch explained.

The platform will contain 445 loans, comprised almost entirely of prime 30-year, fixed-rate mortgages originated or acquired by New Penn Financial, a wholly-owned subsidiary of Shellpoint. 

The pool’s original weighted average combined loan-to-value ratio is 64.4%, indicating substantial equity in the properties, Fitch explained. 

New Penn Financial mortgages make up 100% of the transaction. Additionally, Wells Fargo will act as the master servicer and custodian for the deal.

The weighted average borrower credit score is 770, which demonstrates a strong borrower credit profile.

However, a concern for the credit rating agencies is that the originator and issuer have no prior performance history.

"This is New Penn’s first securitization, and therefore, the company does not have any securitization history," Kroll explained. 

Shellpoint announced at the beginning of this month that it was approved by the SEC to issue private-label RMBS, which would allow the firm to sell as much as $2 billion of residential bonds.

cmlynski@housingwire.com

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