Reports have emerged this week of possible trouble in one series of Suncorp mortgage securities. The reports came after Suncorp notified the ASX its Apollo 2010-1 Trust was experiencing a “relatively low pool balance” after a “small number of mortgage loans went into arrears by more than 60 days over the last 12 months.” As a result, not all note holders would receive their previously-anticipated principal payments.
While some analysts and commentators alternatively suggested Suncorp’s announcement may be a sign of stress in the RMBS market or some sort of “canary in the coal mine” warning regarding mortgages as a whole, others say it’s a storm in a teacup.
Suncorp offloaded $1 billion of mortgages via its Apollo 2010-1 trust in May 2010. At the time of the transaction, Suncorp described the assets underlying the trust as “a pool of prime residential first ranking mortgage loans…The notes are floating rate, principal pass-through, secured, limited recourse, rated securities.”
The Apollo 2010-1 trust comprises four tranches. The A1 tranche was worth $630 million and units in it were purchased by investors at 1 month BBSW + 100bps. The second largest A2 tranche contained $300 million worth of mortgages and its units were priced at 1 month BBSW + 110bps. This tranche was entirely purchased by the AOFM* as part of its support for the RMBS market after it dried up during the GFC. The AB and B tranches totalled $70 million and they were initially retained by Suncorp.
The catalyst for Suncorp’s announcement was an increase of the pool’s mortgages in arrears for more than 60 days past a 3% trigger. Under the terms of the Apollo 2010-1 trust, principal repayments from borrowers would be distributed to trust note holders preferentially. AAA-ranked Class A1 note holders would receive their principal-component payments first, then Class A2 holders would be next and so on. If funds ran out before certain classes of notes were paid then there would be a larger principal component left owing on those notes.