COLT returns with a $382 million RMBS deal, more heavily weighted to California mortgages

COLT 2021-3 Mortgage Loan Trust is preparing to issue $382.7 million in mortgage-backed securities, backed by a portfolio of 557 mortgage loans that were extended to borrowers with strong credit profiles, yet most of which were underwritten largely to the ability to repay (ATR) standard.

Morgan Stanley is acting as the lead underwriter on the transaction, which LSRMF Acquisitions is sponsoring, according to Fitch Ratings. The loans were sourced from a number of originators, with Sprout Mortgage Asset Trust (63.6%) and Oaktree Funding Corp. (22.8%) accounting for a majority of the originators. Other originators accounted for less than 5% of the pool.

Seasoned at an average of just one month, the underlying loans have an average balance of about $687,203, an original weighted average (WA) loan-to-value of 71.7%, and an original debt-to-income ratio of 37.9%. The WA model FICO is 744.

Fitch noted that just 16.1% of the portfolio was underwritten to a full documentation standard, under a program that examines 12 to 24 months of bank statements to verify income. About 84% of the pool was underwritten to less-than-full documentation.

As the credit markets move away from Libor indexing, just 14% of the adjustable-rate underlying loans reference one-year U.S. dollar Libor, according to Fitch. None of the rated certificates issued to investors or hedges are pegged to Libor.

Fitch noted that in terms of the underlying loans’ geographic concentration, about 49.6% of the loans were made to properties in California. The Golden State represented the largest state in COLT 2021-1 and COLT 2021-2, but COLT 2021-3 is the largest concentration at this point this year.

Los Angeles accounts for the largest MSA concentration with 31.5%, followed by Miami, with a concentration of 9.7%. Owing to this, the rating agency increased its loss expectations by 110 basis points at Fitch’s ‘AAA’ rating stress level.

A large majority of the underlying loans are funding home purchases (63.2%), and most of the loans (74.3%) are funding primary residences. Also, 25.4% of the underlying loans have a cashout feature, according to Fitch.

Fitch expects to assign an ‘AAA’ rating to the $294 million A-1 class; ‘AA’ to the $11.2 million class A-2 and ‘A’ to the $28.3 million class A-3 notes.

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