PennyMac sails into jumbo RMBS
Kroll pre-rates the deal, giving most tranches AAA ratings
PennyMac Mortgage Investment Trust (PMT) is the latest company to take on the private-label residential mortgage-backed securitization market, with the company ready to price and issue its first deal of the year.
In April, the company said it would plan its first deal for the third quarter of 2013, signaling a growing market confidence in private capital — ultimately falling in line with expectations that Fannie Mae and Freddie Mac will lose dominance in the secondary space.
"PennyMac has been talking about doing a deal for quite some time and the fact that rates moved down seemed to open a door for them to go out and actually bring a deal to market," said Compass Point analyst Kevin Barker.
He added, "They are involved in the origination of conforming new loans and involved on the distressed side as well, so this will just provide them another avenue of product to originate and sell into the market."
PennyMac is focused mostly on distressed investments and home lending through federal programs.
However, Kroll believes PennyMac is well positioned to take on the jumbo RMBS market given the fact the company has experience in dealing with distressed assets that carry complex servicing requirements, explained Kroll Bond Ratings senior director Michele Patterson.
The company is bringing PMT Loan Trust 2013-JI to the market with a reported total balance of $550.5 million.
Kroll Bond Ratings pre-rated the deal, giving the majority of the tranches AAA ratings.
The mortgage pool is larger than most recent RMBS transactions, comprised of 691 first-lien mortgages. The pool consists entirely of 30-year fully amortizing fixed-rate mortgages.
PennyMac Loan Services will be the servicer for all the loans. Additionally, CitiBank (C) will act as the securities advisor and fiscal agent.
The borrowers within the deal possess substantial equity in their mortgage properties, with an average loan-to-value ratio of 69.7%. Additionally, borrower credit quality is strong with the average FICO score of 770 — well within the ‘prime’ mortgage range.
However, the pool exhibits significant geographic risk, with approximately 56.5% of the mortgages tied to properties located in California, which is seen in the majority of current securizations.
The biggest hurdle for PennyMac was convincing the credit rating agency that the company is well positioned to be the primary servicer even though it's an unrated entity and fairly new to the jumbo-prime space, Patterson said.
But after meeting with senior management, Kroll grew more confident in the set-up since PennyMac's staff has more than 20 years of experience in the industry, Patterson concluded.