Clayton Holdings Receives Rankings from Morningstar

Morningstar Credit Ratings has ranked Clayton Holdings LLC as both a Residential Mortgage-Backed Securities Agent and as a Residential Representation and Warranty Reviewer, according to an announcement from Clayton.

Clayton is a Connecticut-based subsidiary of Radian Group Inc. and provider of risk-based analytics, residential loan due diligence, surveillance, REO management, consulting, valuation, title, and settlement services.

In both categories, Morningstar ranked Clayton MOR RV2 with a “stable” forecast.

“We are extremely pleased with Morningstar’s assessment of Clayton’s core capabilities,” Clayton President Jeff Tennyson said. “Deal monitoring, portfolio surveillance, servicer oversight and file reviews are existing core competencies of Clayton.  We are excited to be recognized by Morningstar for the utility in these newly evolved functions of deal agent and representation and warranty reviewer and hope that Clayton’s demonstrated preparedness serves as a further catalyst to reinvigorate the private-label securitization market.”

According to the announcement from Clayton, this is the first time any ratings agency has ranked a company in either category. Most observers expect the still-evolving concept of the deal agent will include the functions of servicer surveillance and portfolio oversight, as well as the representation and warranty reviewer’s loan review responsibilities contained in private label securities.

According to Morningstar, a representation and warranty reviewer is designed to provide an independent third-party review of certain loans, based on trigger events defined in the transaction documents. The most recent transaction for which Clayton served as representation and warranty reviewer was Angel Oak Mortgage Trust 2015-1.

“The need for an independent third party to protect investors’ interests is viewed as vital to the re-emergence of the private-label securitization market,” Morningstar noted. “This view is shared by the U.S. Treasury Department and the Structured Finance Industry Group (SFIG), two entities that have supported and promulgated the development of the deal agent concept via SFIG’s RMBS 3.0 initiative.”

Morningstar said in its wrote that Clayton has reviewed more than 12 million loans of varying types, both conforming and non-conforming. Clayton has been performing independent evaluations of residential mortgage-backed securitizations, asset-specific reviews, and servicer performance assessments since 1997. For trending and performance analysis, Clayton has maintained a database of approximately 7.6 million mortgage loans.

Also according to Morningstar, Clayton has performed more than 300,000 loan reviews for mortgage industry stakeholders often related to external regulator mandates; also, the company has performed more than 200 mortgage servicing-related operational reviews.

“Clayton is uniquely positioned to fulfill the roles of a deal agent and a representation and warranty reviewer,” Morninstar wrote in its report. “The full suite of mortgage industry services offered by Clayton and its subsidiaries positions the company well to fulfill the anticipated role of the deal agent and representation and warranty reviewer as well as any customized requirements that may be mandated by industry stakeholders.”