A pool of recently originated, first- and junior-lien revolving home equity lines will secure about $366.9 million in asset-backed securities (ABS) coming to market through the Saluda Grade Alterative Mortgage Trust, series 2026-HB1.
The transaction will sell the notes through about 12 tranches of class A, M and B notes, according to analysts at Morningstar DBRS. After the deal's February closing date, notes are expected to have a legal final maturity date in April 2056.
Saluda Grade's notes are backed by a pool of 3,208 loans, which each correspond to a home equity line of credit family. Junior liens make up most of the collateral pool, with 2,812 loans, DBRS said. All the HELOCs are current, and the vast majority have never been delinquent by 30 days or more.
Leverage is moderate across the pool, the rating agency found, yet the junior liens carry slightly more risk, on a weighted average (WA) basis. The junior lien borrowers have a FICO score of 718 and cumulative loan-to-value (LTV) ratio of 72.6%, and a debt-to-income ratio of 36.4%. First liens the pool, comparatively, have a FICO score of 733, LTV of 52.9% and DTI of 31.3%.
It is also a non-qualified mortgage pool and are exempt from ability-to-repay rules, the rating agency said.
Most of the notes are priced against the three-month, Secured Overnight Financing Rate (SOFR), according to the rating agency. Spreads range from 150 basis points over the class A1A notes, rated (p) AAA (sf) to 450 bps over the (p) B (low) (sf), the rating agency said.
Subordination provides credit enhancement to the notes, DBRS said, which amounts to levels of 33.9% and 23.9% on the A1A and A1B notes, respectively; 19.0%, 13.10%, and 7.65% on the M1, M2 and M3 notes, respectively; and 3.55% and 0.70% on classes B1 and B2, respectively.
DBRS' ratings include (P) AAA (sf) to the A1A through A1X notes; (P) AA (low) (sf)to the M1 notes and (P) (low) (sf) to the B2 tranche of notes.
