Cascade's manufactured-home MBS deal puts focus on new originations

Cascade Financial Services is sponsoring its first rated transaction of manufactured-home (MH) loan contracts, a rare and historically riskier asset class in residential mortgage-backed securities.

According to a presale report issued by Fitch Ratings, Cascade will market $162.7 million in bonds backed by 1,889 MH loans, of which most are secured by chattel properties (or structure-only loans that do not include land as collateral).

The deal is the third post-crisis manufactured-housing securitization rated by Fitch, following deals in 2019 and 2020 that were sponsored by FirstKey Mortgage. But it is the first deal to primarily focus on new-origination contracts, with average seasoning of just 12 months, Fitch noted.

The capital stack of the bond offering features seven tranches of notes, includes a $103.2 million Class A-1 notes tranche with preliminary AAA ratings from Fitch.

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The notes are backed by 36.6% credit enhancement.

About 49% of the loans (with average balances of $86,135) were originated in Texas, and chattel loans make up about 72% of the collateral pool. Nearly all of the manufactured homes (98%) were built within the past four years.

The borrower profile of the deal is non-prime with a weighted average FICO of 637, with 3.1% having experienced a delinquency within the past two years. All of the loans are current, however.

Fitch cautions that manufactured-housing loans have experienced higher default rates and lower recoveries for lenders and investors. But with an average coupon of 8.8% for the loans, Fitch expects a “notable amount of excess spread” over an expected low offering rate.

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