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Investments

Are the jumbo RMBS floodgates finally re-opening?

Credit Suisse brings third jumbo RMBS to market this year

rmbs

For the third time in 2014, Credit Suisse (CS) is preparing to bring a prime, jumbo residential mortgage backed securitization to market. While the overall market for this paper remains tiny compared to the pre-bust days, the jumbo space is growing healthily. And compared to the crickets heard right after 2008, the market looks set for continued growth, with the return of old players and the emergence of some new ones as well.

The latest offering, called CSMC Trust 2014-IVR3, is backed by 526 mortgage loans with a total principal balance of $363.63 million.

The offering comes nearly three months after CS launched its most recent jumbo RMBS and becomes the sixth offered by CS since the housing recovery began.

It also marks a trend of increasing jumbo RMBS offerings over the last few months.

JPMorgan Chase & Co. (JPM) has issued two jumbo RMBSs this year, beginning in February with J.P. Morgan Mortgage Trust 2014-1, which was comprised of 412 first-lien mortgage loans with an aggregate principal balance of $356 million.

In June, JPMorgan brought its second jumbo RMBS to market with J.P. Morgan Mortgage Trust 2014-2, which was built on a pool of 544 loans with an aggregate loan balance of $303.75 million.

That securitization was of note because it was backed by 15-year fixed notes.

In June, a new player burst onto the scene when WinWater Home Mortgage offered its first securitization, a $250 million jumbo RMBS.

The company refers to itself as “a residential mortgage conduit aggregator focused on opportunities in the non-agency jumbo sector” and was formed by “certain principals of Premium Point Investments.”

And earlier this month, the once-prolific Redwood Trust (RWT) issued its second jumbo RMBS of the year as well. Redwood’s Sequoia Mortgage Trust 2014-2 was backed by 438 loans with an average loan balance of $698,736.

In March, Redwood brought its first jumbo RMBS of the year to market after issuing roughly one RMBS per month in 2013.

Now, Credit Suisse is bringing its largest jumbo RMBS of the year to market. In its previous offerings in 2014, the highest pool balance was $297.36 million. The new offering exceeds that by $66 million.

But the average loan balance ($691,303) is lower than any of the previous six jumbo RMBSs from Credit Suisse.

DBRS has released its presale ratings and awarded primarily AAA ratings to the securitization.

DBRS cites the quality of the collateral as a strength of the offering. “This transaction exhibits high-quality credit attributes such as low loan-to-value ratios (72.2%), strong borrower credit (average FICO score of 768) and full documentation on substantially all loans,” DBRS said in its presale report.

“The mortgage loans in the transaction were originated to high-income borrowers with significant reserves, primarily through retail channels,” DBRS noted. “The loans that are subject to the qualified mortgage and ability-to-repay (rules are categorized as QM Safe Harbor.”

DBRS also notes that 100% of the loans were reviewed by a third-party due diligence firm.

A subordination floor, which is present to address tail risk and retain credit support, also structurally enhances the transaction.

“In the event of a servicer loan modification, the reimbursement of servicing advances would be reduced only from the principal distribution amount in reverse order of priority,” DBRS said. “The advance reimbursements may not result in reductions in interest distribution payments.”

The underlying loans were originated by Quicken Loans (33.2%), Fifth Third Mortgage Company (13.1%), First Republic Bank (10.7%), Caliber Home Loans (6.1%), Sierra Pacific Mortgage Company (5.1%), and with other originators making up the remaining 31.8%.

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