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North-Texas based servicing giant Nationstar Mortgage Holdings ($41.89 -0.44%) priced a securitization from its special purpose vehicle Nationstar Agency Advance Funding Trust for an estimated $900 million in mortgage servicer advance receivable-backed notes.
The Trust’s note issuance is an asset-backed securitization of servicer advance receivables made on Freddie Mac-backed residential loans. The series notes are backed servicing fee advance receivables.
In other words, Nationstar gets paid to service mortgages. This deal securitizes those payments. As long as Nationstar can keep forwarding the payment portion to investors, the risk of nonpayment is slim.
The initial advance receivables as well as the additional advance receivables are created through the servicer’s advancing obligations under the designated servicing agreements.
Standard & Poor’s pre-rated the first deal of three series for the year – 2013-VF1, 2013-T1 and 2013-T2 -- giving the majority of the deal’s tranches AAA ratings.
Click on the list to view S&P ratings.
The deal noted credit enhancement of overcollateralization — where more mortgages sit on the trust sidelines for swapping out — as a structural mechanism strengthening the transaction. Interestingly, receivables from Fannie Mae backed loans can be swapped out of the series, to replace any underperforming Freddie mortgages.
For each funding period or payment period during the revolving period, the trust performs a collateral test to maintain a certain level of the overcollateralization of the trust asset. If the collateral test fails, the trust will use funds remaining after paying fees and interest payments to pay down the variable funding notes balance until the test is satisfied.
"Receivables are first to get repaid so the principal should be safe," said David Akre, principal at residential loan and servicing capital markets consulting firm Whole Loan Capital.
He added, "The biggest risk is probably the servicer’s oversight on advances, and their accounting of same."
S&P ranks Nationstar 'above average' as a residential loan servicer, residential master loan servicer and subprime loan servicer. The company is also ranked average as a residential special servicer; another transaction strength.
There is one general reserve account, separating reserve funds for the term notes and variable funding notes – a debt instrument representing borrowed funds which are payable on demand and accrue interest based on the funds.
Generally, the reserve funds cover interest and fees. The advance rates are subject to automatic reductions through a trigger advance rate.
“If the collateral's monthly reimbursement rate declines, the advance rates for the related rating category may decline because of the trigger advance rates, increasing the overcollateralization,” S&P noted.
Click on the chart to view Nationstar's transaction diagram.
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