Once an absolute giant in the mortgage securitization space, Wells Fargo has been noticeably absent from the list of issuers since the housing crisis, but that’s all about to change.
The lender is preparing to issue its first mortgage-backed securitization since the meltdown, and unlike its past securitizations, this one is backed by the highest of high-quality loans.
According to a Fitch Ratings presale report on Wells Fargo’s new securitization, the borrowers backing the $441.25 million mortgage bond have the highest average credit scores of any and all mortgage securitizations issued since the crisis.
To repeat, Fitch’s report states that Wells Fargo Mortgage Backed Securities 2018-1 Trust (WFMBS 2018-1) carries a weighted average FICO score of 779, the highest weighted average FICO score of any residential mortgage-backed securitization rated by Fitch in the post-crisis era.
According to Fitch’s report, approximately 52% of the borrowers backing the offering have original FICO scores at or above 780.
WFMBS 2018-1 is backed by 660 prime fixed-rate mortgages that carry a total balance of approximately $441.25 million.
In addition to the exceedingly high credit scores, Fitch states that the mortgage pool is “very high quality,” carrying other attributes that make it among the strongest of all the RMBS deals rated by Fitch since the crisis.
The loans carry an average loan balance of $668,566 and an average seasoning of 17.5 months. None of the 660 loans are currently delinquent and the borrowers are all holding significant cash reserves, along with substantial equity in the properties themselves.
According to Fitch’s report, the weighted average original loan-to-value ratio on the loans was 72.8%, meaning the borrowers brought some serious financial backing to their loans. Additionally, the borrowers have $340,669 in their cash reserves, on average.
As with most of the jumbo RMBS deals of the past few years, the Wells Fargo deal’s geographic concentration is focused on California. That’s a common occurrence in recent issuance, given the nature of the housing market in California.
Interestingly though, the New York City area is the largest single market in the Wells Fargo deal, with 23.7% of the loans in the RMBS coming from the New York area. San Francisco and Los Angeles are the second and third largest markets in the deal.
All of the loans in the securitization were originated through Wells Fargo’s retail channel, which Fitch said is a “key strength.”
According to Fitch’s report, it expects to award $419.19 million in AAA ratings to Wells Fargo’s new deal, citing the strength of the deal.
As Fitch notes, this isn’t actually the first time that Wells Fargo loans ended up in a securitization post-crisis, as the lender has been originating and contributing to agency and non-agency securitizations for several years.
But this is the first time since the crisis that Wells Fargo has issued a securitization on its own.
The megabank was once one of the biggest issuers in the market, putting hundreds of billions in RMBS deals into the market in the early-to-mid 2000s.
That all ended with the financial crisis. Wells Fargo's last issuance before this one was in February 2008. But now, Wells Fargo is back.