PennyMac Corp. is sponsoring a $298.1 million residential mortgage-backed securities (RMBS), the first to be backed solely by home loans underwritten to debt-service coverage ratio (DSCR) standards.
The collateral pool is composed of non-agency, business-purpose, investor loans, according to analysts at Kroll Bond Rating Agency. The underwriting relied on the value of the mortgaged property, the credit score of the mortgagor or guarantor, and a sponsor-calculated DSCR, which includes rental income in the calculation.
The deal is slated to close on November 5, KBRA said, and notes have a slated final maturity of September 2067.
The transaction, PMT Loan Trust, 2026-DSC1, will sell the notes through a series of class A, M and B notes, KBRA said. Among the most senior classes is a first-cash flow and a last-cash flow tranche, which will receive payments sequentially.
PMT 2026-DSC1 will repay the notes following a sequential payment structure, and the structure includes excess spread of about 0.10% when the deal closes. The structure also includes a 90-day stop advance feature, which prohibits the advancing party from forwarding and principal and interest on loans that are delinquent by 90 days or more.
Classes A1 through A3, which is composed of seven tranches, are expected to pay coupons of 6.39%. Coupons on the M1 note will be determined at pricing, while coupons on the subordinate notes will be the net weighted average coupon (WAC) for each accrual period prior to the step-up rate, KBRA said.
For credit enhancement, the notes benefit from and have credit enhancement levels ranging from 15.61% on the first- and last-cash flow tranches to 6.90% on the A3 tranche, KBRA said. All the A1 tranches benefit from enhancement levels of 15.61%, except the A1A tranche, which has a credit enhancement level of 25.61%, KBRA said.
The mezzanine tranche has a credit enhancement level of 4.05%, and credit enhancement on the B1, B2 and B3 subordinate notes is 1.70%, 1.05% and 1.00%, respectively.
Morgan Stanley is the structural lead, the rating agency said, while BofA Securities and Nomura Securities are co-lead managers and joint bookrunners, KBRA said.
The collateral includes 853 rental property mortgages whose underwriting did not include borrowers’ debt-to-income ratios, borrowers with too many mortgaged properties to qualify for agency lending or a borrowing entity like an LLC, KBRA said.
Underlying mortgages are primarily fixed-rate, 99.3%, with adjustable-rate mortgages accounting for only 0.7%, the rating agency said.
KBRA assigns ratings of AAA to the A1 classes; AA- and A- to classes A2 and A3; and BBB-, BB- and B+ to classes M1, B1 and B2.
