The recently closed CSMC Trust Mortgage Corp 2012-CIM3 ('CIM3') transaction has insufficient credit enhancement to achieve a 'AAA' rating, according to Fitch Ratings.
While asked to provide feedback, Fitch was ultimately not selected to rate the transaction, the ninth new issue prime RMBS transaction completed in 2012. Fitch believes it has a more conservative credit stance regarding this transaction. In fact, at 5.85%, the credit enhancement available to the 'AAA' rated A-2 class is more than 15% lower than any Fitch rated prime RMBS transaction issued since 2008. Fitch's estimated credit enhancement ('CE') for the senior class A-1 and A-2 notes was 8%.
The collateral attributes of the CIM3 pool are consistent with those Fitch would consider representative of a high credit quality prime portfolio. That said, the 5.85% CE available to the A-2 class is not sufficient in Fitch's view to fully address the risks associated with the pool, including concentrations in geographies whose property prices remain well above what Fitch believes are sustainable values.
A key component of Fitch's analysis is to reduce home prices to their sustainable value prior to applying its market value decline (MVD) stresses. Six of the top ten MSA's represented in the transaction were applied base MVD's over 20% including Washington-Arlington-Alexandria that accounts for 17.3% of the pool.
The portfolio consists of 30-year fully amortizing fixed-rate mortgages extended to borrowers with strong credit profiles (weighted average FICO of 774) and fully documented income. At origination, the loans were supported by considerable equity in properties and the pool had a weighted average CLTV of 69.2%. While there were 15 originators that contributed loans to the subject pool, approximately 72% of the loans sourced from Quicken Loans, PHH Mortgage, and First Savings Mortgage. Fitch completed originator reviews on these three largest contributors to the transaction.
Third party due diligence was completed on 100% of the loans in the underlying pool with very few negative findings noted. While each of the underlying seller's provides reps and warranties to the deal, the transaction also benefits from a backstop provided by DLJ Mortgage Capital, Inc., a wholly owned subsidiary of Credit Suisse (rated 'A/F1' by Fitch). However, similar to the CSMC Trust 2012-CIM1 and CSMC Trust 2012-CIM2 transactions issued by Credit Suisse earlier this year, CIM3 does not include binding arbitration to resolve repurchase disputes for all sellers/originators.
The CIM3 transaction also includes some notable changes with respect to its rep and warranty framework. In contrast to other 2012 prime issuance which had life of loan reps and warranties, this transaction introduces 36-month sunset provisions for reps and warranties, applied to both fraud and underwriting aspects. Also unique for 2012 issuance, the CIM3 transaction documents contain specific clauses defining when a rep and warranty breach would cause a loan to be repurchased; this may serve to provide improved clarity. Fitch has not fully reviewed all aspects of the rep and warranty framework in this transaction.