AIG breaks into mortgage securitization big-time with high quality first offering

Underlying mortgages’ average FICO scores are highest since crisis

When American International Group sold its mortgage-guaranty unit United Guaranty to Arch Capital Group last year, the company said that it planned to turn to residential mortgages to make up for the loss in revenue from the sale of United Guaranty.

But AIG didn’t start originating new loans. Rather, the company has been buying up high-quality jumbo mortgages, and now plans to securitize those loans.

According to a presale report from Fitch Ratings, AIG is preparing to bring its first residential mortgage-backed securitization to market – a $511.98 million offering backed by 850 jumbo mortgages.

And while AIG is new to the securitization game, the quality of the RMBS deal itself is one of the strongest since the crisis.

According to Fitch, the deal, which is called Credit Suisse Mortgage Capital 2017-HL1 Trust, has underlying borrowers with “strong credit profiles, relatively low leverage and large liquid reserves.”

But just how strong are the borrowers’ credit profiles?

Fitch states in its report that the pool has a weighted average original FICO score of 779, which is higher than any transaction rated by Fitch since the crisis.

Per Fitch’s report, approximately 53% of the borrowers have original FICO scores at or above 780. Additionally, the deal carries an original weighted average collateralized loan-to-value ratio of 73.8%, which indicates that the borrowers have “substantial” equity in their homes and carry a reduced probability of default.

According to Fitch’s report, 100% of the loans in the pool are Safe Harbor Qualified Mortgages. The average loan size is approximately $602,000 and the largest loan is approximately $995,000, which means that there is a relatively low loan concentration risk.

Additionally, the weighted average liquid reserves of the underlying borrowers is approximately $209,600, while the borrowers’ average annual income is approximately $245,000.

The underlying pool also is not oversaturated by loans from California, as many post-crisis jumbo RMBS deals are. According to Fitch’s report, only 36.7% of the loans are from California.

Additionally, the loans are seasoned an average of 15 months.

Fitch notes that AIG acquired the underlying loans from quite a few originators.

Finance of America Mortgage (9%), Stearns Lending (6.4%), American Pacific Mortgage Corp. (5.3%), and Cornerstone Home Lending (5.2%) are the top originators in the pool. Other lenders make up the remaining 74.2%, with no originator making up more than 5% of the remaining pool.

Because AIG is a new aggregator, Fitch said that it conducted a full review of AIG’s aggregation processes and believes “that AIG meets industry standards needed to aggregate mortgages for residential mortgage-backed securitization.”

Due to those factors and more, Fitch handed out $484.58 million in AAA ratings to the deal.

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