Cascade Financial Services is sponsoring its first rated transaction of manufactured-home (MH) loan contracts, a rare and historically riskier asset class in residential mortgage-backed securities.
According to a presale report issued by Fitch Ratings, Cascade will market $162.7 million in bonds backed by 1,889 MH loans, of which most are secured by chattel properties (or structure-only loans that do not include land as collateral).
The deal is the third post-crisis manufactured-housing securitization rated by Fitch, following deals in 2019 and
The capital stack of the bond offering features seven tranches of notes, includes a $103.2 million Class A-1 notes tranche with preliminary AAA ratings from Fitch.
The notes are backed by 36.6% credit enhancement.
About 49% of the loans (with average balances of $86,135) were originated in Texas, and chattel loans make up about 72% of the collateral pool. Nearly all of the manufactured homes (98%) were built within the past four years.
The borrower profile of the deal is non-prime with a weighted average FICO of 637, with 3.1% having experienced a delinquency within the past two years. All of the loans are current, however.
Fitch cautions that manufactured-housing loans have experienced higher default rates and lower recoveries for lenders and investors. But with an average coupon of 8.8% for the loans, Fitch expects a “notable amount of excess spread” over an expected low offering rate.
