IFR: Firm of mortgage-bond pioneer launches its first RMBS

By Adam Tempkin

-- US RMBS

--Ranieri’s Shellpoint Partners markets deal as Moody’s takes a swipe at lending platform

Shellpoint Partners, a company formed in 2010 with an investment from mortgage-bond pioneer Lewis Ranieri, this week marketed its inaugural non-agency US RMBS transaction.

S&P, Fitch, DBRS and Kroll rated the prime mortgage deal, a US$251.377m trade titled SAFT 2013-1. The US$235.42m 4.63-year a senior tranche received Triple A ratings.

The loans are being originated out of Shellpoint’s wholly-owned New Penn Financial platform. Wells Fargo is the master servicer of the transaction. The deal did not price by press time.

“This is New Penn’s first securitization and therefore the company does not have any securitization history,” Kroll wrote in a pre-sale report.

The Shellpoint deal came out  Thursday with relatively wide price guidance of interpolated swaps plus 240bp-245bp on the Triple A tranche.

Market experts said that last week’s FOMC/Bernanke announcement contributed to the spread volatility, although an ongoing supply/demand imbalance in non-agency MBS has buffeted the market as well, possibly affecting investor reception to the transaction.

Dealers are said to be long non-agency RMBS product, mainly as a result of the Lloyd’s US$8.7bn BWIC auction from two weeks ago.

“Pricing will no doubt be impacted by the recent Fed-induced wholesale retrenchment in asset prices, but I think also by some of the supply/demand imbalance engendered by the Lloyds sale,” said Christopher Sullivan, chief investment officer of the United Nations Federal Credit Union.

“So I would expect RMBS prices generally to come under renewed pressure as quarter-end draws near. It’s an interesting set-up here for this (Shellpoint) deal.”

Sullivan suggested investors would likely require a significant amount of concession on the deal to account for spread volatility.

California concentration

Geographical concentration is also a risk for the deal, as it has been for several recent private-label RMBS deals. There is a high concentration of California-based loans (63% according to Fitch), linked to high home prices, in the portfolio. Some 13%, 12%, and 9.5% are in the San Jose, Los Angeles and San Diego areas, respectively.

“The pool has significant regional concentrations that resulted in an additional penalty of about 15% to the pool’s lifetime default expectation,” said Fitch analysts in a pre-sale report.

While 4.3% of the loans were originated to foreign nationals with no credit score, the weighted average FICO of 770 for borrowers with a credit score demonstrates a strong borrower credit quality, according to Kroll.

While high, the geographic concentration in SAFT 2013-1 is comparable to those seen in recent RMBS transactions, Kroll said.

The mortgage pool consists of 445 first-lien mortgage loans with an aggregate principal balance of US$261.57m. The pool is made up almost entirely of 30-year fixed rate mortgages.

The remaining loans have terms of 10 years (two loans), 15 years (14 loans), and 20 years (one loan).
There are five hybrid adjustable-rate mortgages (ARMs) in the pool - two 5/1, two 7/1 and one 10/1.
Approximately 97% of the pool is fully amortising, with the other 3% (thirteen loans) having a 10-year interest-only (IO) period.

Moody’s calls New Penn “below average”

Rating agency sniping reared its head again regarding the deal, this time directed by Moody’s at a mortgage-lending platform co-owned by Ranieri.

The ratings firm on Thursday published a critical assessment of New Penn Financial, the mortgage-origination platform bought by Ranieri’s mortgage-finance firm Shellpoint Partners two years ago.

The timing of Moody’s report is significant, given that Shellpoint’s deal was marketing. All of the loans in the offering, which are mostly prime jumbo, were originated off of the New Penn Financial platform.

Moody’s was not chosen to rate the deal. Standard & Poor’s, DBRS, Kroll, and Fitch each assigned the senior tranche of the transaction a Triple A rating with 10% credit enhancement. Credit Suisse declined to comment.

Moody’s said that New Penn’s mortgage-lending platform is too new and untested, and wrote a negative “originator review” of the Shellpoint-owned company. The ratings firm described New Penn as “a below average originator of prime, jumbo residential mortgage loans”.

Moody’s said the company, which was bought by Shellpoint two years ago, has “liberal lending guidelines that: allows foreign national borrowers, uses assets for income, and has debt-to-income (DTI) ratios as high as 58%.”

Additionally, the company had high turnover in its underwriting team in 2012, and “weak reserve requirements compared to other jumbo originators,” the agency wrote.

New Penn is a relatively new mortgage originator, having been in business for just five years. Shellpoint Partners LLC, co-founded in 2010 by Ranieri, has owned New Penn for about two years and is the driving force behind its origination growth of jumbo and other types of loans that are ineligible for sale or securitisation to Fannie Mae or Freddie Mac.

Lewis Ranieri was said to have coined the term “securitisation” when he headed up the mortgage-bond department of Salomon Brothers in the late seventies and early eighties, where he helped to price the first-ever private mortgage-backed security.

Moody’s admitted that New Penn adequately vets borrower income and employment, and has “good procedures for rooting out fraud for loans made to non-foreign national borrowers.”

However, “the number and seasoning of the loans are insufficient for Moody’s to give any weight to New Penn’s early loan performance at this time,” Moody’s said. The ratings firm regards New Penn’s loan performance as too recent to assess correctly.

New Penn originated just 158 jumbo loans during the review period — not enough for a meaningful assessment, Moody’s added.

Moreover, New Penn has a “small appraisal management team with no licensed appraisers on staff,” wrote a team of Moody’s analysts led by Kathryn Kelbaugh.

Pricing was expected on Friday afternoon. Shellpoint filed with the SEC last October to issue up to US$2bn in private-label RMBS, and intends to become a programmatic issuer.