AIG marketing $296M in bonds backed by ‘super-jumbo’ mortgages

Mortgage

American International Group is sponsoring its fifth “super-jumbo” residential mortgage securitization via five indirect subsidiaries that acquired the prime loans underwritten primarily for owner-occupied properties.

The Pearl Street Mortgage Co. (PSMC) 2019-1 Trust will issue $296 million in notes secured by a pool of 472 first-lien, large-sized mortgages underwritten to high net worth borrowers, according to a presale report from Kroll Bond Rating Agency. A majority of the non-agency loans (75.6%) are purchase loans.

The transaction, cooperatively sponsored by the insurer’s residential mortgage lending group of five home-loan entities, is among the smaller of AIG’s recent super-jumbo pools that have been as high as $429 million.

The new trust will issue 14 classes of super senior, senior and subordinate notes in the transaction. Nine of the note classes (including three interest-only classes) garnered AAA ratings from Kroll. Five of the super-senior AAA rated note tranches benefit from 15% credit enhancement, similar to previous PSMC transactions last year.

The loans have an average remaining balance of $627,096. All but 1.2% of the mortgages have 30-year, fixed-rate terms with an average coupon of 4.56%.

The pool has strong credit characteristics, including a weighted average borrower FICO is 773 for homebuyers with average annual incomes of $262,166 and monthly free cash flow average of $7,529 (issuer estimate). The loans carry an average loan-to-value ratio of 72.5%.

The loans are more well-seasoned at 8.8 months than prior PSMC transactions (which ranged from 2.8-5 months). lightly seasoned loans (averaging 8.8 months of age) were issued by multiple lenders, with Caliber Home Loans (12% of the pool balance), Stearns Lending Inc. (7.5%), Pulte Mortgage (6.4%), CMG Mortgage (5.6%) and NewRez (5.4%) representing the top originators in the deal.

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More than 80% of the loans are considered super-jumbo loans with balances between $500,000-$1 million. Less than 4% are over $1 million, with AIG capping loan sizes at $1.5 million. All of the loans are full-document homes that are designated safe harbor under federal qualified mortgage/ability-to-repay rules; none of the loans in the pool are delinquent.

Based on a qualified residential mortgages exemption, AIG is not holding a risk-retention stake — which Kroll does not view as a credit risk to the transaction due to the compliance burden placed on AIG.

Single-family homes make up 97% of the pool, with 37.8% originated in California.

Kroll has an expected loss of 4.15% on the pool, down from 4.9% in AIG’s prior super-jumbo transaction in October 2018.

AIG’s current residential mortgage lending group began acquiring jumbo loans, including servicing rights, when a subsidiary of the former Connective Mortgage Advisory Co. in 2013, and issued two securitizations in 2017. Connective was acquired by AIG in 2016, and launched the PSMC conduit platform in 2018.

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