Guaranteed Rate Inc. is sponsoring a fixed rate first mortgage securitization through the RATE Mortgage Trust 2021-HB1, and this is the promoter’s first transaction where high balance compliant mortgages are underwritten at using an automated system designated by an agency represents 100% of the pool of guarantees.
The Guaranteed Rate has issued four blue chip securitizations from the current RATE J shelf. This pool consists of fully amortized mortgages with an original term of primarily 30 years and an age of approximately one month, according to DBRS Morningstar, which plans to assign ratings to the notes.
The transaction is expected to close on December 10. The majority of bonds are expected to be rated âAAAâ, with several subordinate categories likely to be rated âAAâ through âBâ.
Bank of America Securities, Citigroup Global Markets, Goldman Sachs & Co. and Morgan Stanley & Co. are the first buyers of the notes. The capital structure of the deal uses an improved senior subordinated and variable interest cash flow structure compared to a pre-crisis structure, DBRS said.
The Guaranteed Rate has the ability to redeem any mortgage that becomes 90-120 days past due using the Mortgage Bankers Association method. The price will be equal to par plus interest and unreimbursed service advance amounts, provided that purchases are less than 10% of the initial capital balance on November 1, the deadline for the pool of guarantees.
DBRS notes that the borrowers of the underlying loans are of high credit quality. The original CLTV ratios, on a weighted average basis, are 67.2%, the debt-to-loan income ratio, on a WA basis, is 35% and the WA FICO score is 763. Only 3.8 % of the 549 loans in the collateral pool are piggyback seconds, DBRS said.
The average loan balance is $ 697,414, with a WA coupon of 2.9%.
RATE Mortgage, 2021-HB1 uses a framework of representations and guarantees with some notable weaknesses, according to DBRS. On the one hand, the guaranteed rate will make the R&W, but is not a rated R&W provider. In addition, the transaction includes certain sunset mechanisms which allow certain provisions of R&W to expire within three to six years of the closing date.
In addition, the service administrator is expected to advance principal and expected interest on overdue mortgages until such loans become 120 days past due or are deemed uncollectible. DBRS says this will likely reduce the severity of losses, as the advances will not have to be repaid by the trust when the mortgages are liquidated. Instead, certificate holders could experience periodic interest deficits.