Fitch: First Post-Crisis Nonperforming Loan-backed RMBS Pays Off

Fitch Ratings, New York, reported its first post-crisis, Fitch-rated residential mortgage-backed securities class backed in part by non-performing loans has been paid in full.

Class A-1 from Mortgage Fund IVc Trust 2015-RN1 received the remainder of its unpaid principal balance with the August distribution, Fitch reported. The transaction closed in October 2015, with a $35 million class A-1 rated ‘Asf’ by Fitch. At issuance, one-third of the mortgage loan pool was 90 or more days delinquent or in foreclosure, with an additional 14 percent 30-60 days delinquent.

Fitch Senior Director Sean Nelson said IVc Trust 2015-RN1 represented the first post-crisis RMBS transaction rated by Fitch that contained a significant percentage of non-performing loans.

Fitch said the percentage of the pool 90 or more days delinquent (including foreclosure and REO) declined since issuance from one-third to one-quarter of the remaining pool. Loss severities on liquidated loans to date have averaged 37 percent, outperforming Fitch’s base-case lifetime severity assumption at issuance of 55 percent.

Fitch noted the transaction has a sequential principal payment waterfall, in which class A-1 received all scheduled and unscheduled principal payments before class A-2 received any principal payments. In the year since it was issued, class A-1 received monthly principal payments averaging $3.4 million. The mortgage pool incurred $20.8 million of realized losses since issuance, comprising $14.4 million of loss from liquidations and $6.4 million of loss from deferred principal modifications.

“Class A-1 was well protected against realized pool losses to date,” Nelson said. “In addition to the $205 million of credit enhancement provided by the unrated class A-2, classes A-1 and A-2 also had roughly $111 million of overcollateralization at issuance to absorb collateral losses. The initial credit enhancement was significantly above the amount needed to support the initial credit rating of ‘Asf.'”