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Flagstar continues to build securitization prowess with 5th deal of 2018


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Flagstar continues to build securitization prowess with 5th deal of 2018

Upstart residential mortgage securitizer Flagstar Bancorp Inc. has returned to the market with a $476.1 million transaction backed by prime jumbo loans following a brief respite after the second quarter.

Flagstar issued its first post-financial crisis securitization in the summer of 2017 and has since established itself among a relatively small group of regular prime jumbo RMBS sponsors, having completed six transactions during the past 14 months. Three of those deals occurred during the second quarter.

"It's testament to the scale of our origination business we were able to issue three deals in one quarter," said Flagstar Executive Vice President and COO Lee Smith during a July conference call. And, he added, "we expect securitizations to be a regular occurrence for us in the future."

A DBRS presale report indicates that Flagstar Mortgage Trust 2018-5 is backed by 726 30-year, fixed-rate mortgages with an average balance of $655,731. Consistent with past prime jumbo deals, the loans have a weighted-average borrower FICO score in excess of 760 and a weighted-average original combined loan-to-value ratio of below 70%. While Flagstar generated a majority of the loans through the correspondent channel, it also produced some of the loans through the retail and broker channels. DBRS noted that the underlying loans had generally been extended to borrowers with relatively high levels of income and liquid reserves.

In addition to three prior 2018-vintage prime jumbo deals, which closed in February, April and June, respectively, Flagstar also sponsored a transaction backed by agency-eligible, investment property loans. That $329 million issuance closed in May.

"Flagstar has become a regular issuer in the securitization market," DBRS said in the Flagstar Mortgage Trust 2018-5 presale report. At the same time, the rating agency cautioned that Flagstar "is a relatively new issuer of post-crisis prime jumbo securitizations and as a result has limited performance history on securitized loans." DBRS observed as a mitigating factor that the performance of Flagstar's securitized and non-securitized prime jumbo originations since 2013 "has been strong with minimal delinquencies."

The steady issuance in the first half of 2017 came even as Flagstar navigated what President and CEO Alessandro DiNello lamented during a Sept. 5 presentation at an investor conference as "a really lousy mortgage business" characterized by tight margins and "fierce" competition from companies "just trying to make it through the next day," resulting in "irrationality" in the marketplace.

Other prime jumbo sponsors, particularly Redwood Trust Inc. and JPMorgan Chase & Co., have also had especially active years. But their respective postcrisis programs have traditionally ranked among the most prolific in the industry. Redwood, for instance, recently celebrated the 50th postcrisis securitization on its Sequoia platform — a feat that CEO Christopher Abate said during an August call "seemed like a distant goal when we restarted this market ... back in 2010."

The J.P. Morgan Mortgage Trust platform recently executed its eighth securitization to date in 2018: a prime jumbo deal backed by loans with an aggregate outstanding principal balance of nearly $999 million. It matched its full-year 2017 issuance volume of six transactions in the first six months of 2018.

Redwood completed nine Sequoia securitizations in 2017, including deals backed by its traditional prime jumbo collateral as well as by its loans originated in conjunction with its expanded-prime "Choice" program. Its 2018 issuance recently hit double digits with the completion of the $327.5 million prime jumbo Sequoia Mortgage Trust 2018-7. The company has sponsored three securitizations backed by the expanded-prime loans in 2018; all five of its expanded-prime securitizations have closed in the past 12 months, including three to date in 2018.

DBRS said it expects the latest Flagstar deal to close Sept. 20.