Fitch Rates COLT 2018-4 Mortgage Loan Trust.
--$243,005,000 class A-1 certificates 'AAAsf'; Outlook Stable;
--$34,385,000 class A-2 certificates 'AAsf'; Outlook Stable;
--$26,056,000 class A-3 certificates 'Asf'; Outlook Stable;
--$18,079,000 class M-1 certificates 'BBBsf'; Outlook Stable;
--$3,013,000 class M-2 certificates 'BBB-sf'; Outlook Stable;
--$10,280,000 class B-1 certificates 'BBsf'; Outlook Stable;
--$5,000,000 class B-2 certificates 'B+sf'; Outlook Stable.
Fitch will not be rating the following certificates:
--$14,675,121 class B-3 certificates.
KEY RATING DRIVERS
Non-Prime Credit Quality (Concern): The pool has a weighted average (WA) model credit score of 720 and a WA combined loan to value ratio (CLTV) of 82%. Of the pool, 31% consists of borrowers with prior credit events (within the past seven years and received a probability of default penalty) and 43% had a debt to income (DTI) ratio of over 43%. Investor properties account for 1.2% of the pool.
Fitch applied default penalties to account for these attributes, and loss severity (LS) was adjusted to reflect the increased risk of ATR challenges.
100% Full Income Documentation (Positive): All loans in the mortgage pool were underwritten to the comprehensive Appendix Q documentation standards defined by ATR, which is not typical for non-prime RMBS. Mortgage pools of all other active non-prime RMBS issuers include a significant percentage of non-traditional income documentation. While a due diligence review identified roughly 27% of loans (by count) as having minor variations to Appendix Q, Fitch views those differences as immaterial and all loans as having full income documentation. The COLT series transactions that are comprised of 100% Caliber origination are the only non-prime RMBS issued with 100% full income documentation.
Strong Operational and Data Quality (Positive): Caliber has one of the largest and most established Non-QM programs in the sector. Fitch views the visibility into the origination programs as a strength relative to Non-QM transactions with a high number of originators. Fitch reviewed Caliber and Hudson Americas L.P.'s (Hudson's) origination and acquisition platforms and found them to have sound underwriting and operational control environments, reflecting industry improvements following the financial crisis. These improvements are expected to reduce risk related to misrepresentation and data quality and were reflected in strong third-party due diligence results.
Alignment of Interests (Positive): The transaction benefits from an alignment of interests between the issuer and investors. LSRMF Acquisitions I, LLC (LSRMF), as sponsor and securitizer, or an affiliate will retain a horizontal interest in the transaction equal to not less than 5% of the aggregate fair market value of all certificates in the transaction. Lastly, the representations and warranties are provided by Caliber, which is owned by LSRMF affiliates and, therefore, also aligns the interest of the investors with those of LSRMF to maintain high-quality origination standards and sound performance, as Caliber will be obligated to repurchase loans due to rep breaches.
Modified Sequential Payment Structure (Mixed): The structure distributes collected principal pro rata among the class A certificates while shutting out the subordinate bonds from principal until all three classes have been reduced to zero. To the extent that any of the cumulative loss trigger event, the delinquency trigger event or the credit enhancement trigger event occurs in a given period, principal will be distributed sequentially to the class A-1, A-2 and A-3 certificates until they are reduced to zero.
R&W Framework (Concern): As originator, Caliber will be providing loan-level representations and warranties to the trust. While the reps for this transaction are substantively consistent with those listed in Fitch's published criteria and provide a solid alignment of interest, Fitch added approximately 169 bps to the expected loss at the 'AAAsf' rating category to reflect the non-investment-grade counterparty risk of the provider and the lack of an automatic review of defaulted loans. The lack of an automatic review is mitigated by the ability of holders of 25% of the total outstanding aggregate class balance to initiate a review.
Servicing and Master Servicer (Positive): Servicing will be performed on 100% of the loans by Caliber. Fitch rates Caliber 'RPS2-'/Outlook Negative due to its fast-growing portfolio and regulatory scrutiny. Wells Fargo Bank, N.A. (Wells Fargo), rated 'RMS1-'/Outlook Stable, will act as master servicer and securities administrator. Advances required but not paid by Caliber will be paid by Wells Fargo.
Performance Triggers (Mixed): Credit enhancement, delinquency and loan loss triggers convert principal distribution to a straight sequential payment priority in the event of poor asset performance. The delinquency trigger is based only on the current month and not on a rolling six-month average.
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 may be considered in the surveillance of the transaction. Three sets of sensitivity analyses were conducted at the state and national levels to assess the effect of higher MVDs for the subject pool.
This defined stress 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 8.9%. The analysis indicates that 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 'COLT 2018-4 Mortgage Loan Trust', available at www.fitchratings.com.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by AMC Diligence, LLC. The third-party due diligence described in Form 15E was conducted on 100% of the loans in the pool and focused on three areas: a compliance review, a credit review, and a valuation review. Fitch considered this information in its analysis and believes the overall results of the review generally reflected strong underwriting controls. No adjustments were made to Fitch's loss expectations as a result of the findings.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jan 23, 2019|
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