NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings and Rating Outlooks to Shellpoint Asset Funding Trust 2013-1 (SAFT 2013-1):
--$158,810,000 class A-1 certificate 'AAAsf'; Outlook Stable;
--$50,000,000 class A-2 certificate 'AAAsf'; Outlook Stable;
--$25,841,000 class A-3 certificate 'AAAsf'; Outlook Stable;
--$234,651,000 non-offered class A-IO notional certificate 'AAAsf'; Outlook Stable;
--$50,000,000 non-offered class A-2-IO notional certificate 'AAAsf'; Outlook Stable;
--$5,220,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$5,090,000 class B-2 certificate 'Asf'; Outlook Stable;
--$5,873,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$4,307,000 non-offered class B-4 certificate 'BBsf'; Outlook Stable.
The $5,872,918.81 non-offered class B-5 certificate will not be rated by Fitch.
The 'AAAsf' rating on the senior certificates reflects the 10.10% subordination provided by the 2% class B-1, 1.95% by class B-2, 2.25% by class B-3, 1.65% by non-offered class B-4 and 2.25% by non-offered class B-5. The class A-3 senior certificates are senior support certificates.
This is the inaugural transaction issued by Shellpoint Partners LLC (Shellpoint). The pool comprises 445 first lien mortgage loans with an aggregate principal balance of $261.58 million originated or acquired by Shellpoint's wholly owned subsidiary, New Penn Financial, LLC (New Penn). New Penn either originated the mortgage loans in the transaction directly (93.4%) or acquired them pursuant to its flow correspondent program (6.6%). New Penn has 39 offices in 20 states and has its approvals from Fannie Mae, Freddie Mac, USDA and Ginnie Mae. The company commenced non-agency prime jumbo originations in 2011.
The loans will be serviced by Selene Finance LP (Selene), and Wells Fargo Bank, N.A. (WFB) will act as master servicer for the transaction. New Penn will act as servicing administrator with respect to the mortgage loans. As servicing administrator, New Penn's role is limited to funding servicing advances and advances of delinquent scheduled interest and principal payments for the mortgage loans as notified and requested by the primary servicer, Selene.
KEY RATING DRIVERS
Low Combined Loan-to-Value (CLTV) and Sustainable Loan-to-Value (sLTV): The pool's original weighted average (WA) combined loan-to-value ratio (CLTV) is 64.6%, indicating substantial equity in the property and reduced default probability. The base case weighted average (WA) sLTV on the pool is 78.8%. The low sLTV is an indication that the borrowers will still have significant equity after a sustainable market value decline (sMVD) of 17.6%, as projected by Fitch's sustainable home price model.
FICO Drift: The pool has a strong WA original FICO of 770. However, refreshed FICOs for a population of seasoned borrowers showed large downward swings, causing the credit score tail of under 720 to widen to 12% of the pool. Roughly 8% of the pool had refreshed FICOs below 700, indicating a concentration of borrowers with a higher default risk potential.
High Geographic Concentration: The pools' primary concentration risk is California, where 63% of the properties are located. In addition, 13%, 12% and 9.5% of the properties are located in the San Jose, Los Angeles and San Diego MSAs, respectively. The pool has significant regional concentrations that resulted in an additional penalty of about 15% to the pool's lifetime default expectation.
Loans to Foreign Nationals: Approximately 5% of the pool (16% by loan count) comprises loans to non-U.S. citizens. The risk associated with these borrowers includes a lack of a U.S. credit history and the potential to leave the U.S. without fulfilling their mortgage obligation. While these loans are restricted to primary and secondary uses, Fitch applied a penalty of 1.45x the base probability of default (PD). Low FICOs were assumed for those borrowers in which a U.S. credit score was not obtained. Offsetting these risks is the very low average LTV of 62% and debt to income ratio of 21%.
Limited Operating History: New Penn was formed in 2008 and acquired by Shellpoint Partners LLC (Shellpoint) in 2011. While management of both entities has extensive mortgage industry experience, and New Penn has been an approved FHA/VA/Fannie Mae lender for several years, prime jumbo originations were commenced in 2011. Fitch conducted an originator review in 2012 and noted weaknesses in the platform primarily attributable to the start-up circumstances. While Fitch observed improvements during the 2013 review, the company has not yet reached a competency level comparable to originators that Fitch deems as average quality.
Robust Representation Framework but Weak Provider: The representation, warranty and enforcement mechanism (RW&E) framework is viewed positively by the agency as it is consistent with Fitch's criteria. However, New Penn does not meet the criteria's financial condition threshold. As a result, Fitch increased its loss expectations by approximately 1% to account for the possibility of higher defaults and losses arising from Shellpoint's inability to repurchase loans due to breaches as well as some of the operational risks identified.
Seller Interests Aligned with Investors': The seller, depositor, or an affiliate will initially retain at least classes B-4 and B-5 for its investment portfolio. As holder of the first loss classes, the seller is not the controlling holder; therefore, its ability to direct the trustee to take an action with respect to a RW&E breach is the same as all other certificate holders. Given its first loss position, Fitch views this as a strong incentive for New Penn to originate and include high-quality loans in the pool.
Fitch's analysis incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction. Two sets of sensitivity analyses were conducted at the MSA and national level to assess the effect of higher MVDs for the subject pool.
Roughly two-thirds of the pool is located in California, in areas with both high and low MVD projections. The MVD projections are key contributors to Fitch's default and loss risk assessment of this pool. Fitch conducted sensitivity analysis assuming sMVDs of 15%, 20%, and 25% for all the California regions. The sensitivity analysis indicated no impact on ratings for all bonds in each scenario.
This set of sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20% and 30% in addition to the model-projected 17.6% for this pool. The analysis indicates there will be no rating impact with a further 10% MVD from the current model projection. However, there is some potential rating migration with higher MVDs compared with the model projection.
Key Rating Drivers and Rating Sensitivities are further detailed in Fitch's accompanying presale report, available at 'www.fitchratings.com' or by clicking on the above link.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Structured Finance Rating Criteria' (June 6, 2012);
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 10, 2012);
--'U.S. RMBS Rating Criteria' (July 10, 2012).
--'U.S. RMBS Representations and Warranties Criteria' (June 24, 2013);
--'U.S. RMBS Originator Review and Third-Party Due Diligence Criteria (April 26,2013).
Applicable Criteria and Related Research:
U.S. RMBS Originator Review and Third-Party Due Diligence Criteria
Global Structured Finance Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Rating Criteria
U.S. RMBS Representations and Warranties Criteria