NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Citigroup Mortgage Loan Trust 2015-RP2 (CMLT 2015-RP2) as follows:
--$159,563,000 class A-1 notes 'Asf'; Outlook Stable;
--$159,563,000 class A-1-IO notional notes 'Asf'; Outlook Stable;
--$159,563,000 class A exchangeable notes 'Asf'; Outlook Stable;
--$159,563,000 class A-2 exchangeable notes 'Asf'; Outlook Stable;
--$159,563,000 class A-2-IO notional exchangeable notes 'Asf'; Outlook Stable.
The $12,024,000 class B-1 notes, the $9,966,000 class B-2 notes, the $8,341,000 class B-3 notes, the $11,807,000 class B-4 notes, the $14,949,840 class B-5 notes, the $216,650,840 notional class X-IO notes, and the $3,131,537 class FB notes are not expected to be rated by Fitch.
The class A and B notes are supported by 816 re-performing mortgage loans with a total balance of approximately $216.65 million as of the cutoff date. Distributions of principal and interest and loss allocations are based on a senior-subordinate, shifting-interest structure for these notes. The unrated class FB notes are supported by deferred principal balances of the 57 loans that have received principal deferral modifications. Distributions of principal and loss allocations for these notes will be based exclusively on these deferred balances.
The 'Asf' rating on class A-1 notes reflects the 26.35% subordination provided by the 5.55% class B-1, 4.60% class B-2, 3.85 % class B-3, 5.45% class B-4, and 6.90% class B-5 notes.
Fitch's rating on the class A-1 notes reflects the credit attributes of the underlying collateral, the quality of the servicer, Fay Servicing LLC. rated 'RPS3' and 'RSS3' by Fitch, the representation (rep) and warranty framework, due diligence findings with adequate mitigants, and senior subordinate, shifting interest structure.
KEY RATING DRIVERS
100% Clean Current Re-performing Loans: The collateral pool consists primarily of peak-vintage seasoned re-performing loans (RPLs) all of which have been current with their monthly payments for the past 24 months. Approximately 50% of the loans have received modifications.
Solid Rep Framework: Fitch views the representation, warranty, and enforcement mechanism (RW&E) construct for this transaction to be generally consistent with what the agency considers a full framework with the exception of very minor variances. Citigroup Global Markets Realty Corp. (CGMRC), a subsidiary of Citigroup ('A/F1'/Stable Outlook), is providing life of loan reps. While some reps have knowledge qualifiers, they are subject to a clawback provision. Fitch categorized the framework as Tier 2 due to the minor variances.
Limited Due Diligence Findings: Third-party due diligence was conducted on 100% of the pool by JCIII and Associates, Inc. (JCIII), which covered regulatory compliance, pay history, and servicing comments. Roughly 75 loans had grades of 'C' and 38 were graded 'D' for compliance due to missing or incomplete documentation. Fitch applies longer timelines for RPL transactions, which addresses the 'C' grades, and reliance was placed on the reps for those graded 'D'. Meridian Asset Services (Meridian) performed the tax and title search and review for recordation of the mortgage note and subsequent assignments on 100% of the loans. There are 390 loans for which the assignments and intervening assignments have not been recorded. CGMRC will repurchase loans not recorded within a year from deal closing.
No Servicer P&I Advances: The servicer will not advance delinquent monthly payments of principal and interest (P&I) to the extent not collected from borrowers to the trust. Therefore, such P&I advances will not accrue as additional carry costs on loans that become delinquent and eventually liquidate. As a result, the loss severity (LS) calculated by Fitch is less than if the servicer was obligated to advance P&I through liquidation, as is standard for most prime jumbo transactions of newly originated loans.
Potential Interest Deferrals: To address the lack of an external P&I advance mechanism, principal otherwise distributable to the notes may be used to pay monthly interest. Principal is available to pay interest on notes. As a result, bonds may experience long periods of interest deferral that will generally not be repaid until such note becomes the most senior outstanding.
Under Fitch's Criteria for Rating Caps and Limitations in Global Structured Finance Transactions' dated May 2014, the agency may assign ratings up to 'Asf' on notes that incur deferrals if such deferrals are permitted under the terms of the transaction documents, provided such amounts are fully recovered with interest accrued thereon prior to legal final maturity under the relevant rating stress.
Senior Subordinate, Shifting Interest Structure: The mortgage cash flow and loss allocation are based on a senior subordinate, shifting interest pay structure, whereby subordinate classes receive only scheduled principal and are locked out of receiving unscheduled principal or prepayments for the first five years. The lockout feature helps maintain subordination for a longer period should losses occur later in the life of the deal. The applicable credit support percentage feature redirects subordinate principal to classes of higher seniority if specified credit enhancement (CE) levels are not maintained. Fitch views this structure as consistent with an 'Asf' rating for RPL transactions.
PD Adjustment for Clean Current Loans: Fitch's analysis of the performance of clean current loans - i.e. loans with clean payment histories for the past 24 months - found that its loan loss model projected probability of defaults (PDs) for those loans were more punitive than those indicated by Fitch's roll rate projections. To account for this, Fitch reduced the lifetime default expectations by approximately 27% at 'Asf' for all of the loans, since 100% have been current for at least the past 24 months.
Extended Foreclosure Timelines: Fitch increased its foreclosure timeline assumptions for all loans by an additional six months due to the likelihood that RPLs may enter foreclosure relatively quickly and, therefore, be subject to the long timelines reflective of today's liquidation/foreclosure environment rather than the shorter timelines expected for newly originated loans that are not likely to enter default for a few years.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. 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.
Fitch conducted sensitivity analysis determining 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 7.6% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
Fitch's stress and rating sensitivity analysis are discussed in its presale report released today Citigroup Mortgage Loan Trust 2015-RP2, available at 'www.fitchratings.com' or by clicking on the link.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from JCIII & Associates (JCIII). The due diligence focused on regulatory compliance, pay history, servicing comments, the presence of key documents in the loan file and data integrity. In addition, Meridian Asset Services (Meridian) performed a tax and title search as well as custodial file review on all loans. A BPO reconciliation was conducted on a random sample of 273 loans, representing approximately 30% of the original securitization population. Fitch received certifications indicating that the loan-level due diligence was conducted in accordance with its published standards for reviewing seasoned loans and in accordance with the independence standards outlined in its criteria. Fitch considered this information in its analysis and based on the findings, did not make any additional adjustments to its liquidation timeline assumptions currently applied to re-performing loans.
Additional information is available at www.fitchratings.com.
Sources of Information:
In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents provided on the transaction's 17g5 website available on 'www.structuredfn.com'.
Citigroup Mortgage Loan Trust 2015-RP2 (US RMBS)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)
Global Structured Finance Rating Criteria (pub. 31 Mar 2015)
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
U.S. RMBS Loan Loss Model Criteria (pub. 17 Nov 2014)
U.S. RMBS Qualified and Non-Qualified Mortgage Criteria (pub. 31 Mar 2015)
U.S. RMBS Surveillance and Re-REMIC Criteria -- Effective June 24, 2014 to June 1, 2015 (pub. 24 Jun 2014)
US RMBS Re-Performing Loan Criteria (pub. 21 Nov 2014)