(Bloomberg) — Rithm Capital Corp. sold nearly $900 million of debt backed by the fees collected from homeowners when they make their mortgage payments, in what the firm said is the largest ever securitization of its kind.
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Bond buyers finalized their orders earlier this month at a spread of 290 basis points over Treasuries. Rithm expanded the original size of the deal to accommodate more investors, according to Sanjeev Khanna, the company’s head of capital markets.
The bonds are tied to rights to collect mortgage payments, known as mortgage servicing rights, and it’s only the second such deal that’s non-recourse, the company said. That feature means that if the bonds fail to make payments, investors can only make claims on the assets in the securitization itself, not on Rithm.
That feature makes the securitization more similar to other types of asset-backed securities, potentially paving the way for more deals, according to Charles Sorrentino, head of investments at Rithm.
“Once the corporate guarantee is removed, the transaction works in a manner that’s more familiar to structured products investors,” he said.
It’s also the second deal not to have a credit rating, according to Rithm. The company sold the first non-recourse, non-rated mortgage servicing rights securitization last year.
Mortgage servicing rights holders pocket a small fee as compensation. These rights become more valuable as interest rates increase, because fewer homeowners will refinance their loans in that scenario, generating a stream of fees for the servicers for a longer period of time.
Rithm is among biggest sellers of mortgage servicing rights securitizations, having issued 17 such deals for more than $7.7 billion combined, according to the statement.
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