Definitions
Credit Risk Transfer (CRT)
Credit risk transfers are a form of synthetic securitization. With Government Sponsored Entities (Fannie Mae, Freddie Mac) CRTs, investors are not funding mortgages directly (that occurs via the pass-through certificates from Freddie Mac and Fannie Mae). Instead, CRT investors are participating alongside Freddie Mac and Fannie Mae through securitization of a portion of the mortgage credit risk retained by the GSEs.
Jumbo Loan
A type of home mortgage that exceeds the lending limits set by the Federal Housing Finance Agency (FHFA) for conventional mortgages. A jumbo loan is not eligible to be purchased, guaranteed or securitized by GSEs.
Non-Qualified Mortgage (Non-QM)
A non-qualified mortgage is a mortgage taken out by borrowers with the funds to buy a home but cannot meet the typical mortgage eligibility requirements — for example, a self-employed worker with irregular income, such as acontractor.
Nonperforming Loan/Reperforming Loan (NPL/RPL)
Nonperforming loans are those in default. Often, they can be bought at a considerable discount and benefit from any potential workout or recovery.
Reperforming loans were once delinquent for at least 90 days and are now performing again. With an RPL, typically, a borrower has filed for bankruptcy and has continued to make payments because of the bankruptcy agreement. Such an agreement generally allows the borrower to become current on their debt via a loan modification program.
Single Family Rental (SFR)
Single-family rental securitizations (SFR) are a hybrid of CMBS-like deal structures with MBS-type collateral. Large operators tend to finance portfolios of homes through single-borrower securitizations, where they are the sole sponsor of the underlying loan(s). These deals most closely resemble single-asset, single-borrower CMBS. Smaller players have their loans combined in multi-borrower deals, which require enhanced credit analysis as multiple sponsors and a broader range of collateral can heighten risks.
Residential Transition Loan (RTL)
Residential transition loans help borrowers finance short-term rehabilitation and construction projects. The borrower aims to sell or find long-term financing as a rental property eventually. The first securitization occurred in 2018, so it is a relatively new asset class within ABS. Issuance increased post-COVID amidst low rates and a housing supply shortage. They are also called Short Term Residential Investor loans, Fix-and-Flip loans and Residential Bridge loans.
Home Equity Line of Credit (HELOC)
A home equity line of credit is a revolving line of credit secured by equity built up in a home that offers credit at a lower rate than credit cards or consumer unsecured loans.