[UPDATE: Third paragraph removes reference to New Penn being affiliated with Springleaf. The two organizations are not affiliated.]
Springleaf Financial is bringing its third private-label residential mortgage-backed securitization deal to market, carrying more potential risks when compared to earlier deals.
The platform, Springleaf Mortgage Loan Trust 2013-3, received mixed preliminary ratings, ranging from AAA to B, due to operations and counterparty risks — specifically, the company’s decision to exit the originations business, according to Standard & Poor’s. In the run up to the credit crisis, it was not unusual for similar deals to get disproportionately higher triple-A ratings.
In 2012, Springleaf ceased originating new real estate loans nationwide to focus on other consumer lending products and its insurance operations.
Springleaf, on its own, ceased its mortgage origination business in 14 states and has also consolidated operations in another 26 states.
As per S&P’s criteria, if an originator is no longer originating loans, an originator review is less robust.
However, in pre-rating Springleaf’s third RMBS deal, the credit ratings agency "believes that historical performance can be used to better predict future performance than the originator’s underwriting criteria and process."
Consequently, S&P currently rates the company as ‘B-,’ indicating it may risk financial difficulty in meeting repurchase claims, which would constitute a reps and warrants breach.
Additionally, the loan characteristics in the transactions are significantly more risky than Springleaf’s previously rated RMBS transactions, S&P noted.
Unlike most of the previous transactions, this deal includes loans that have experienced a 30-day delinquency in the past 12 months — only 72.5% of the loans have been current for at least a year.
"While the majority of loans selected for inclusion in this transaction have been current for 12 months, they have been selected from a general subprime mortgage loan population that we expect to have significant delinquencies," S&P analysts noted.
They added, "The increased loss coverage primarily reflects the higher updated loan-to-value of the loans the lower FICO scores as a result of some loans’ past delinquencies."
The deal’s expected balance is $344.27 million, with collateral consisting of seasoned first-lien, fixed and adjustable-rate residential mortgages secured by subprime borrowers.
American General mortgages will make up the majority of the deal, or roughly 71.2%.
Other originators include Wilmington Finance, Equity One (EQY), MorEquity and Springleaf Financial.
In addition, Springleaf will be the primary servicer and sponsor of the deal. Wells Fargo (WFC) will be the master servicer, MorEquity will be the servicer and Nationstar Mortgage (NSM) will be the subservicer.