Towd Point Mortgage Trust is adding more "dirty" pool assets into its fourth reperforming mortgage securitization of 2016.

In its new 2016-4 transaction, Towd is collateralizing 3,383 formerly troubled loans with a pool balance of $649.2 million into a nine-note structure. More than 70% of the loans have received modifications, and 61% have been current and reperforming for the 24 months prior to the cutoff date for the pool.

However, the collateral pool also consists of 39% "dirty current" loans, or those which are paid up-to-date, but have had a recent delinquency or incomplete pay-string, according to Fitch. The level of "dirty current" loans is up significantly from the previous Towd transaction (20%) — enough for Fitch to raise concerns about the performance history of the underlying loans.

Fitch issued a preliminary AAA rating to the senior, $393.4 million Class A1 tranche, but the remaining eight notes were unrated. The Class A1 notes will carry a fixed coupon of 2.26% and 39.42% credit enhancement, according to a presale report from Fitch.

Morningstar and DBRS have also issued triple-A ratings on the Class A1 tranche. DBRS did not rate the subordinate notes; Morningstar issued a range of provisional ratings from AA+ to B.

The Class A2 notes ($42.2 million), the Class M1 notes ($40.9 million) and the class M2 notes ($27.3 million) will carry slightly higher fixed rates, while the remaining five note tranches will be priced with variable rates expected to be 3.96% at launch.

More than 70% of the loans in the pool have received modifications, with the remainder graded as non-modified reperforming loans. They consist of fixed-rate and hybrid adjustable-rate mortgages.

Approximately 20% of the pool is concentrated in California, with 7% concentrated in the Los Angeles area.

The average loan balance is higher than the previous 2016-3 transaction, but the average borrower FICO score has declined to 675.

All of the loans emanate from the secondary market, from purchases made by various Towd Point Master Funding Trusts that are beneficially owned by funds managed by Cerberus Capital Management. The loans are being acquired by the rep provider, seller and sponsor, FirstKey Mortgage, which will transfer the loans to Town Point Asset Funding.

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