Bayview Asset Management is securitizing $159.6 million of securities that transfer the risk of credit losses on mortgages insured by Fannie Mae and Freddie Mac, according to Fitch Ratings.
The deal, dubbed BOMFT 2016-CRT1, is collateralized by 12 different securities, including M-2 classes from various Fannie Mae Connecticut Avenue Securities transactions and M-3 classes from various Freddie Mac Structured Agency Credit Risk transactions.
The underlying securities are general obligations of Fannie Mae and Freddie Mac, but are subject to the credit and principal payment risk of a reference pool of certain residential mortgage loans held in various Fannie- or Freddie-guaranteed MBS. All were issued between 2014 and 2015, and all but one of the underlying transactions rely on a fixed, tiered loss severity schedule that is determined by the amount of cumulative credit events in the reference pool when passing credit losses to bondholders.
It's the first time that anyone has repackaged so-called credit risk transfer securities, according to Fitch. Before the financial crisis, it was fairly common to resecuritize mortgage bonds in order to achieve higher ratings in transactions called "re-REMICs."
Although the transaction is not a re-REMIC, since the underlying securities are not issued by real estate mortgage investment conduits, Fitch is using its re-REMIC criteria to rate the deal.
Fitch currently holds public ratings on eight of the 12 underlying securities ranging from B+ to BB+. For securities that it does not rate, it relies on publicly available information in its credit analysis.
The securitization trust will issue six tranches of notes: $63.8 million of class M-1 notes with a preliminary A- rating; $54.3 million of class M-2 notes rated BBB-, $25.5 million of class B-1 notes rated BB, $13.9 million of class B-2 notes rated B, $63.8 million of class M-1X notional notes rated A- and $54.3 million of class M-2X notional notes rated BBB-.
There will also be $1.9 million of unrated class B-3 notes.
The ratings for the M-1, M-2, B-1 and B-2 notes reflect credit enhancement sufficient to protect against projected losses on the remaining underlying reference pool balances of approximately 2%, 1.2%, 0.8% and 0.45%, respectively.
To date, all of the underlying reference pools have performed well, incurring fewer than 5 basis points of loss, according to Fitch. The performance has been driven by high credit quality and strong home price appreciation. The remaining loans have benefited from an average of 20% home price appreciation since origination.