Fitch Ratings has published its criteria for rating securitizations of U.S. residential mortgage servicer advance receivables, which have seen a gradual rise in new issuance in recent months.
In a servicer-advance receivables trust (SART), the servicer pledges advance receivables from selected pool(s) of residential mortgage-backed securities (RMBS) deals.
According to the underlying pooling and servicing agreements, U.S. RMBS transactions require servicers to advance delinquent principal and interest, as well as other expenses, until the advances are deemed non-recoverable. These advances are reimbursed when a borrower becomes current on payments, when a property is liquidated or when a delinquent mortgage is modified.
Servicer-advance receivables are typically paid at the top of the cashflow waterfall, before any payments are made to bond investors as principal or interest. "While recovery is fairly certain and the rate of recovery is high, there is risk in these transactions relating to the timing of the ultimate collection of recoveries," says Managing Director Roelof Slump.
In addition to analyzing the transaction structure, Fitch's analysis focuses on servicer risk factors, including its historical performance on advance recoveries and the financial strength, operational condition and Fitch rating of the servicer.
SOURCE: Fitch Ratings