Cascade's MBS prefab deal focuses on new origins

Cascade Financial Services sponsors its inaugural Prefabricated Home Loan (MH) deal, a rare and historically risky asset class in residential mortgage-backed securities.

According to a presale report issued by Fitch Ratings, Cascade will market $ 162.7 million worth of bonds backed by 1,889 MH loans, most of which are backed by real estate (or structural-only loans with no land as collateral) .

The deal marks the third post-crisis pre-crisis securitization rated by Fitch, following deals in 2019 and 2020 sponsored by FirstKey Mortgage. However, it's the first deal to focus primarily on new origin contracts, with an average seasoning duration of just 12 months, according to Fitch.

The bond offering's capital stack includes seven debt tranches, including an A-1 class debt of $ 103.2 million with preliminary AAA ratings from Fitch.

The bonds are secured by a credit enhancement of 36.6%.

About 49% of the loans (with an average balance of $ 86,135) came from Texas, and security loans make up about 72% of the collateral pool. Almost all prefabricated houses (98%) were built in the past four years.

The business's borrower profile is not primary, with a weighted average FICO of 637, with 3.1% experiencing crime in the past two years. However, all loans are current.

Fitch warns that prefabricated home loans have seen higher default rates and lower repayments for lenders and investors. With an average coupon of 8.8% for the loans, however, Fitch expects a “substantial excess” over an expected low supply rate.

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