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5th Largest Mortgage Originator Selects Consolidated Analytics for RMBS Due Diligence

-Consolidated Analytics completed an independent due diligence review of agency-eligible residential mortgage loans originated or acquired by Flagstar Bank.-

Background and Landscape

Securitization of mortgage loans is subject to stringent obligations for credit qualification and regulatory compliance standards and requires an independent third-party due diligence assessment for eligibility and risk grading. RMBS issuers and underwriters engage independent third-party review (TPR) firms at the requirement of credit rating agencies and investors to validate the eligibility of loan participation based on standards created by federal regulations such as the Dodd Frank Act and standards for independence, data quality, property valuation, and defect grading.

Additionally, the need for independent reviews is critical as external factors can create risk for RMBS issuers and investors. Risks range from property condition and valuation-related exposure resulting from natural disasters (e.g. hurricanes and tornadoes), uncertainty related to trade policy and interest rate risk, or unforeseen events and global crises (e.g. COVID-19) that may tip the market downward or generate instability.

About the Client

Flagstar Bank is the fifth-largest mortgage originator and third largest savings bank in the U.S. with $23.3 billion in assets. Additionally, Flagstar provides mortgage servicing and subservicing functions on an estimated $228 billion in home loans.

Flagstar Bank selected Consolidated Analytics to complete due diligence on a sample selection of 252 mortgage loans with an aggregate principal balance of approximately $66,198,400.

  • The client was looking to issue an agency-eligible, investment property securitization with a sample selection of 252 loans which required higher levels of due diligence on key risk areas including data integrity, underwriting, regulatory compliance, and property valuation.
  • The issuance opportunity was contingent upon meeting a strict filing deadline.
  • The client needed to engage a third-party review firm that could perform the due diligence within the required filing deadline who was also approved by Moody’s as an independent Third-Party Reviewer (TPR) for residential mortgage-backed securities.

Solution Highlights

The sample of due diligence review included 252 mortgage loans with an aggregate principal balance of approximately $66,198,400. Consolidated Analytics conducted the review consistent with the criteria for the NRSROs listed in the Form ABS Due Diligence 15-E.

Focusing on high-risk due diligence components, SEC form requirements, and client-specific needs, Consolidated Analytics developed a customized review script within its due diligence system to ensure that the review process was accurate, efficient, and met the client’s requirements within strict timelines.

Review components included:

  • Loan Sampling
  • Data Integrity
  • Credit Underwriting
  • Assets/Financial Review
  • Fraud Review
  • Hazard & Insurance
  • Regulatory Compliance (local, state, federal, agency, investor)
  • Investor Guidelines
  • Third-Party Property Valuation/Condition Review
  • Rating Agency Grading

Business Impact

The combination of Consolidated Analytics’ streamlined processes, thorough analysis, exceptional underwriting expertise, and efficient due diligence system enabled the TPR firm to deliver a thoughtful and credible analysis of the related mortgage loans which met the requirements of issuers, underwriters, and credit rating agencies.

  • The client met securitization issuance timelines
  • The issuance was accepted on 2/06/2020 and published on the SEC website, found here
  • The client gained high-quality information and insights that improved transaction transparency and confidence

The due diligence results provided the issuer with detailed feedback on various components and enabled them to confidently move forward with the transaction:

  • Consolidated Analytics’ review concluded all mortgage loans reviewed have an overall grade of “B” or higher and 99.60% of the mortgage loans have an overall grade of “A”
  • Consolidated Analytics’ review concluded 100.00% of the mortgage loans have a Credit grade of “A”
  • Consolidated Analytics’ review concluded all mortgage loans reviewed have a Compliance grade of “B” or higher and 99.60% of the mortgage loans have a Compliance grade of “A”
  • Consolidated Analytics’ review concluded 100.00% of the mortgage loans have a Property grade of “A”

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