DLJ Mortgage Capital, a subsidiary of Credit Suisse, is securitizing $91 million of loans insured by the Federal Housing Administration that were once delinquent but are now making timely payments.

CMSC 2017-FHA1 is the first transaction of 2017 from this issuance shelf, and the deal by anyone backed by reperforming FHA mortgages since 2010, according to Moody’s Investors Service.

The collateral pool is comprised of 672 first-lien, fixed-rate and adjustable-rate mortgages with a weighted average updated FICO score of 614 and a weighted average current loan-to-value ratio of 94.2%. Approximately 82.4% of the loans were previously modified and 52.8% have been current for at least 24 months; another 17.3% have been current for more than 12 months.

The HUD guarantee and the large percentage of borrowers with strong payment histories, as well as the quality of the servicer, Select Portfolio Services, are among the strengths of the deal, according to Moody's Investors Service.

FHA insurance covers 100% of the principal amount of the loans and most of the lost interest and foreclosure expenses on defaulted loans. So should the loan redefault, Moody’s expects recoveries to be “very high.” However, the FHA has strict policies and procedures for servicing loans and processing claims. Failure to comply may result in curtailment of claim reimbursement, and in extreme circumstances, complete rejection of a claim.

Moody’s expected losses on CSMC 2017-FHA1 collateral pool averages 4%, in a base-case scenario.

It expects to assign an A1 rating to the senior, $76 million tranche of notes, which benefits from 16.5% credit enhancement and pays a fixed-rate coupon of 3.25%. There are also three subordinate, variable-rate notes with ratings ranging from Baa2 to B3, as well as several tranches of unrated notes.

Payments, including monthly excess cash flow, are allotted sequentially to the bonds.

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