June 20 (IFR) - Rating agency sniping has reared its head again, this time directed by Moody’s at a mortgage-lending platform co-owned by mortgage-bond pioneer Lewis Ranieri.
The ratings firm on Thursday published a critical assessment of New Penn Financial, the mortgage-origination platform bought by Ranieri’s mortgage-finance firm Shellpoint Partners two years ago.
The timing of Moody’s report is significant, as Shellpoint this week is marketing its inaugural private-label RMBS, the US$251.3m SAFT 2013-1, sole-led by underwriter Credit Suisse. All of the loans, which are mostly prime jumbo, were originated off of the New Penn Financial platform.
Moody’s was not chosen to rate the deal. Standard & Poor‘s, DBRS, Kroll, and Fitch each assigned the senior tranche of the transaction a Triple A rating with 10% credit enhancement. Credit Suisse declined to comment.
Moody’s said that New Penn’s mortgage-lending platform is too new and untested, and wrote a negative “originator review” of the Shellpoint-owned company. The ratings firm described New Penn as “a below average originator of prime, jumbo residential mortgage loans”.
Moody’s said the company, which was bought by Shellpoint two years ago, has “liberal lending guidelines that: allows foreign national borrowers, uses assets for income, and has debt-to-income (DTI) ratios as high as 58%.”
Additionally, the company had high turnover in its underwriting team in 2012, and “weak reserve requirements compared to other jumbo originators,” the agency wrote.
New Penn is a relatively new mortgage originator, having been in business for just five years.
Shellpoint Partners LLC, co-founded in 2010 by Ranieri, has owned New Penn for about two years and is the driving force behind its origination growth of jumbo and other types of loans that are ineligible for sale or securitization to Fannie Mae or Freddie Mac.
Ranieri was said to have coined the term “securitization” when he headed up the mortgage-bond department of Salomon Brothers in the late seventies and early eighties, where he helped to price the first-ever private mortgage-backed security.
The Shellpoint deal came out today with relatively wide price guidance on the Class A tranche: Interpolated swaps plus 240bp to 245bp.
Market experts said that yesterday’s FOMC/Bernanke announcement contributed to the spread volatility, although an ongoing supply/demand imbalance in non-agency MBS has buffeted the market as well, possibly affecting investor reception to the transaction.
Dealers are said to be long non-agency RMBS product, mainly as a result of the Lloyd’s US$8.7bn BWIC auction from two weeks ago.
“Pricing will no doubt be impacted by the recent Fed-induced wholesale retrenchment in asset prices, but I think also by some of the supply/demand imbalance engendered by the Lloyds sale,” said Christopher Sullivan, chief investment officer of the United Nations Federal Credit Union.
“So I would expect RMBS prices generally to come under renewed pressure as quarter-end draws near. It’s an interesting set-up here for this (Shellpoint) deal.”
Sullivan suggested investors would likely require a significant amount of concession on the deal to account for spread volatility.
Moody’s admitted that New Penn adequately vets borrower income and employment, and has “good procedures for rooting out fraud for loans made to non-foreign national borrowers.”
However, “the number and seasoning of the loans are insufficient for Moody’s to give any weight to New Penn’s early loan performance at this time,” Moody’s said. The ratings firm regards New Penn’s loan performance as too recent to assess correctly.
New Penn originated just 158 jumbo loans during the review period -- not enough for a meaningful assessment, Moody’s added.
Moreover, New Penn has a “small appraisal management team with no licensed appraisers on staff,” wrote a team of Moody’s analysts led by Kathryn Kelbaugh.