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New Penn Rated Below Average as Non-Agency Originator

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New Penn Financial LLC has been rated below average as an originator of non-agency loans. The rating reflects, among other things, the relative youth of the mortgage firm.

Last year, the Plymouth Meeting, Pa.-based company originated $5 billion in residential loans. Business soared from just $1.5 billion in 2011.

The five-year-old mortgage banker funds jumbo mortgages and other non-agency loans with the financial backing of parent Shellpoint Partners LLC.

But New Penn is considered a below-average originator of prime jumbo loans by Moody’s Investors Service, according to an announcement Thursday from the New York-based ratings agency.

The rating is the second-worst among five used for originator assessments by Moody’s.

Moody’s noted that the “driving force” behind growth in jumbo and non-agency originations at New Penn is parent Shellpoint Partners, which acquired the company in June 2011.

Shellpoint was an entity created as a venture between New Penn management and Ranieri Partners — a company founded by mortgage-backed securities legend Lewis S. Ranieri.

Moody’s explained that New Penn does a good job vetting income and employment. In addition, the lender has established good procedures for rooting out fraud on loans made to non-foreign national borrowers.

But Moody’s is concerned about liberal guidelines at New Penn compared to other prime jumbo originators.

Another concern is that many of New Penn’s controls are new or still developing — as is the case with the company’s infrastructure and jumbo loan credit policies.

New Penn has been holding on to its originations with plans to securitize the loans in the private-label RMBS market.

So far, none of the 158 non-agency loans originated in 2011 and 2012 for securitization by New Penn have become 60 days delinquent during the first 24 months.

While performance on those loans has been “pristine,” Moody’s said that the number and seasoning of the loans are insufficient for it to give any weight to early loan performance at this time.

A similar assessment was made in an originator review by Fitch Ratings.

“Fitch conducted an originator review in 2012 and noted weaknesses in the platform primarily attributable to the start-up circumstances,” a statement Wednesday said. “While Fitch observed improvements during the 2013 review, the company has not yet reached a competency level comparable to originators that Fitch deems as average quality.”

Still, Moody’s considers New Penn’s originator ability to be average. That rating reflects a below-average assessment of sales and marketing, underwriting, property valuation and credit risk management. It also factors in an above-average rating for closing and third party originator management.

However, Moody’s rated New Penn’s originator stability as below average. That assessment reflects below-average financial strength and quality control, average management strength and staff quality, and above-average technology and legal and regulatory oversight.

In yesterday’s report from Fitch, the ratings agency said it viewed New Penn’s representation, warranty and enforcement mechanism framework positively but warned that the lender doesn’t meet Fitch’s criteria for financial condition threshold.

“As a result, Fitch increased its loss expectations by approximately 1 percent to account for the possibility of higher defaults and losses arising from Shellpoint’s inability to repurchase loans due to breaches as well as some of the operational risks identified,” the statement said.

A New Penn spokesman wasn’t able to immediately comment on Moody’s rating.

Shellpoint is readying a securitization of 445 first mortgages for $262 million, according to a pre-sale report from Fitch. The inaugural issuance by Shellpoint Partners has been dubbed Shellpoint Asset Funding Trust 2013-1 and will be serviced by Selene Finance LP.

New Penn directly originated 93 percent of the loans in the transaction and acquired 7 percent through its flow correspondent program. Nearly two thirds of the loans are secured by California properties, and 5 percent of the borrowers are not U.S. citizens.

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