Kroll senior director Michele Patterson said the deal differed from others in the space that it did not have a master servicer, which she said was “one thing we were trying to get comfortable with.”
Patterson said she was able to get comfortable with this due to the deal’s inclusion of Citi as a fiscal agent that could step in if PennyMac was unable to properly fulfill its duties as primary servicer and make sure that “payments of interest and principal were made on a timely basis to the trust.”
“A successor servicer would need to be found,” she said, but noted that meanwhile the biggest risk when it comes to the absence of a master servicer, the concern that payments would not be advanced, would be taken care of.
The absence of a master servicer, the fact that it is PennyMac’s first securitization, and the fact that there are 58 originators involved in the deal that “don’t have real performance history in the jumbo space,” were three main risks considered in determining expected losses and credit enhancement levels for the transaction, but the latter two are trends that are “not unique to PennyMac,” Patterson said.
“It was the lack of a master servicer that was unusual,” she added.
A more minor difference from other deals in the space was the geographic concentration in the transaction, which was slightly higher but still “within range” for the post-crisis market, said Patterson.
“The [combined first and junior lien] LTV in this transaction is the highest that we’ve seen, but not by a lot, and still what we consider prime quality,” she added. The PennyMac deal’s weighted average first-lien loan-to-value ratio of 69.7% and combined first- and junior-lien loan-to-value ratio of 70.6% were just a little higher than the previous highs in the post-crisis market found in the Sequoia Mortgage Trust 2013-11 transaction, which had an LTV and CLTV of 69.6% and 70.1%, respectively.
The structure of the PennyMac deal is “similar to the majority of the deals that are done” in the jumbo securitization market, Patterson said.
This included some exchangeable certificates, which within the context of the jumbo securitization market “are pretty common,” Patterson said. These have been included in deals issued by Sequoia and JPMorgan to give investors “different options in terms of the coupon that they are receiving,” providing some flexibility in how the deal is structured that they can adjust to their preferences.
Including deals not yet closed, there have been about 40 or so jumbo deals done post-crisis and there are now seven issuers that have closed deals or are in the market.