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Latest CS RMBS Takes the Middle Road on Reps and Warrants

FEB 28, 2013 11:02am ET
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DBRS and Fitch have rated Credit Suisse’s first prime residential mortgage securitization of 2013, noting that its representations and warranties are stronger than those in its previous post-crisis jumbo deal, but weaker than those of other transactions in the market.

“DBRS views this representations and warranties standard [as] stronger than that of the previously-closed CSMC 2012-CIM3 transaction, which DBRS did not rate. However the relatively weak financial strength of the originators and the conditional backstop by the seller still demand additional penalties and credit enhancement protections.”

DBRS’s report indicates the seller, Credit Suisse subsidiary DLJ Mortgage Capital, is backstopping the reps and warrants in the event of an originator’s bankruptcy or insolvency proceeding, or if the originator fails to cure, repurchase or substitute such breach or loans.

“However such backstop is subject to certain conditions and sunset provisions,” DBRS noted.

Fitch’s report noted, “While the transaction benefits from notable rep and warranty improvements relative to the CSMC 2012-CIM3 transaction issued last year, Fitch believes that the backstop being provided by Credit Suisse is weaker relative to those provided in other Fitch rated post-crisis RMBS transactions due to the inclusion of a 36-month sunset on a number of provisions and the conditional clauses in the breach definition.

“The transaction also does not provide for an automatic breach review trigger. However, senior and subordinate investors can direct the trustee to initiate loan reviews and enforce put-back rights on loans that breach R&W covenants. Fitch accounted for the weaker R&W features as part of its transaction analysis.”

Both companies assigned their top ratings to its $392.4 million class A-1 tranche of CSMC Trust 2013-TH1. They also assigned these ratings to its interest-only class, A-IO-1.

In addition, Fitch assigned final ratings appropriate for the asset class ranging from a slightly lower investment grade rating of AAsf to a speculative grade BBsf to classes B1 through B4, noting that the top rating the senior tranche is supported by 7.05% subordination on five B classes. (Fitch did not rate class B-5.)

The originators in the pool are Quicken Loans Inc. (19.1%), PHH Mortgage Corp. (17.7%), BofI Federal Bank (9.9%), First Savings Mortgage Corp. (9.6%), Skyline Financial Corp. (8.4%), Caliber Funding LLC (8.3%), Pinnacle Capital Mortgage Corp. (5.4%) and various others (21.6%), according to DBRS.

Fitch finds two originators representing 3.3% of the pool have not contributed to prior post-crisis RMBS securitizations, and noted that it has performed a full originator review on originators who contributed over 50% of the pool.

Third-party, loan-level due diligence was conducted on 100% of the overall pool, which consists primarily of 30-year fixed rate, fully amortizing and fully documented loans to borrowers with strong credit profiles, low leverage and “substantial” liquid reserves, according to Fitch.

The originators are providing traditional lifetime representations and warranties to the trust with disputes subject to arbitration, the DBRS report shows.

The collateral pool “has a sizable geographic concentration risk in California (50%),” according to Fitch.

However, “The properties are distributed across several metropolitan statistical areas in the state” and the company said it “applied a 1.05x lifetime default expectation adjustment across the entire pool to account for the geographic concentration risk.”

According to Fitch, there are 555 loans in the pool with a total balance of $425,672,567, an average loan balance of $766,978, a weighted average original combined loan-to-value ratio of 68.2%, a weighted average original FICO credit score of 779, and a weighted average coupon of 3.99%.

“Rate/term and cash-out refinances account for 64.6% and 3.5% of the loans, respectively,” Fitch added.

According to DBRS, Select Portfolio Servicing Inc. (82.3%) and PHH Mortgage Corp. (17.7%) will service the loans in the deal. Christiana Trust, a division of Wilmington Saving Fund Society, is the trustee.

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