The $161.7m worth of loans, originated by Caliber Home Loans, were bought by Lone Star and will be arranged by Credit Suisse and graded by Fitch and DBRS, the Financial Times reported.
Mortgage-backed securities are a pool of loans that have been securitised for purchase by investors. Risky, opaque subprime mortgage securities were blamed for sparking the 2007-08 mortgage crisis in the US, as investors were unwittingly overexposed to falling house prices, interest rates and rising number of repossessions.
Fitch said the deal was a “trailblazer” in the market as it is the first subprime securitisation since the crisis and it is agency-rated, giving more certainty to the investor on its risk of default. It added that it was “very possible” similar deals will emerge later this year.
In the US, borrowers are subject to similar affordability checks to their counterparts in the UK. Lenders must adhere to ‘Ability-to-Repay’ rules to ensure the borrower can afford to pay back the loan. One method used by lenders to comply with this is by issuing borrowers with a ‘qualified mortgage’ which meets certain requirements around the creditworthiness of the borrower and loan-to-value ratio of the mortgage.
According to Fitch, half of the Caliber Home Loans transactions are backed with mortgages which sit under the Ability to Repay (ATR) rule, while 41% is designated under qualified mortgage terms. The remaining portion includes safe harbour provisions which protect lenders against legal action or the ATR rule does not apply.
The purchase comes as a US bank moved closer to offering fully self-certified mortgage deals with the launch of a ‘lite-doc’ mortgage, requiring only verification of employment and two months’ worth of bank statements, or one year of profit and losses for self-employed borrowers.
A report on CNBC said that Quontic Bank which is based in Queens, New York, and is covered by the government’s deposit insurance scheme, is offering five-year adjustable-rate mortgages with rates in the low- to mid- 5% range.
As a community development financial institution, Quontic’s mortgages do not have to comply with the ATR rule. Quontic is able to use a loophole which allows it to provide ATR-exempt loans to borrowers in low-income communities.
Self-cert mortgages were banned in the UK under the Mortgage Market Review (MMR), but earlier this year a lender launched outside of the UK offering mortgages which do not require income verification or advice. Following a ‘severe backlog’ of requests, selfcert.co.uk has now suspended new lending until further notice.