Fitch Expects to Rate FirstKey Mortgage Trust 2015-1; Presale Issued

NEW YORK--()--Fitch Ratings expects to rate FirstKey Mortgage Trust 2015-1 (FirstKey 2015-1) as follows:

--$266,790,000 class A-1 exchangeable certificate 'AAAsf'; Outlook Stable;

--$266,790,000 class A-X1 notional certificate 'AAAsf'; Outlook Stable;

--$266,790,000 class A-2 exchangeable certificate 'AAAsf'; Outlook Stable;

--$266,790,000 class A-X-2 notional exchangeable certificate 'AAAsf'; Outlook Stable;

--$266,790,000 class A-X-3 notional exchangeable certificate 'AAAsf'; Outlook Stable;

--$253,605,000 class A-3 exchangeable certificate 'AAAsf'; Outlook Stable;

--$253,605,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;

--$253,605,000 class A-X-4 notional exchangeable certificate 'AAAsf'; Outlook Stable;

--$13,185,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;

--$13,185,000 class A-6 certificate 'AAAsf'; Outlook Stable;

--$13,185,000 class A-X-5 notional certificate 'AAAsf'; Outlook Stable;

--$266,790,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;

--$190,204,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;

--$190,204,000 class A-9 certificate 'AAAsf'; Outlook Stable;

--$190,204,000 class A-X-6 notional certificate 'AAAsf'; Outlook Stable;

--$63,401,000 class A-10 exchangeable certificate 'AAAsf'; Outlook Stable;

--$63,401,000 class A-11 certificate 'AAAsf'; Outlook Stable;

--$60,401,000 class A-X-7 notional certificate 'AAAsf'; Outlook Stable;

--$9,230,000 class B-1 certificate 'AAsf'; Outlook Stable;

--$6,740,000 class B-2 certificate 'Asf'; Outlook Stable;

--$4,835,000 class B-3 certificate 'BBBsf'; Outlook Stable;

--$2,197,000 class B-4 certificate 'BBsf'; Outlook Stable.

The $3,223,861 class B-5 certificate is not expected to be rated by Fitch.

The notes are supported by 407 prime mortgages with a total balance of approximately $293 million as of the cutoff date.

The AAAsf rating on Class A notes reflects the 8.90% subordination provided by the 3.10% class B-1, 2.35% class B-2, 1.80% class B-3, 0.75% class B-4, and 1.05% class B-5 certificates.

Fitch's ratings on the Class A notes reflect the strong credit attributes of the underlying collateral, the representation and warranty framework, and minimal due diligence findings.

KEY RATING DRIVERS

High Quality Mortgage Collateral: The collateral pool consists of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage, and liquid reserves. Third-party, loan-level due diligence was conducted on 100% of the pool with no material findings indicating strong underwriting controls.

Robust Representation Framework but Weak Providers: The representation, warranty, and enforcement mechanism (RW&E) framework is viewed positively by the agency as it is consistent with Fitch's criteria. However, FirstKey and EverBank do not meet the criteria's financial condition threshold for the construct to be viewed by Fitch as a full framework. As a result, Fitch made an adjustment to its loss expectations to account for the possibility of slightly higher defaults and losses arising from FirstKey or EverBank's inability to repurchase loans due to breaches. The adjustment considered the 100% due diligence review as well as the high quality of the mortgage loans.

Issuer with Unproven Track Record: This is the second transaction issued by FirstKey Mortgage (FirstKey). FirstKey launched their conduit for non-conforming mortgage business in late 2013 and therefore has a limited and unproven track record of acquiring mortgage loans through either a flow or bulk basis. Fitch conducted an aggregator review and it is Fitch's opinion that FirstKey meets the industry standards needed to source mortgage loans and has an overall assessment of Average.

Originators with Limited Performance History: A majority of the loans were originated by lenders with limited non-agency performance history. Although the originators have limited performance history, all of the loans were reviewed by a third-party due diligence firm with immaterial findings and Fitch believes the credit enhancement (CE) on this transaction is sufficient to mitigate the potential operational risk.

Safe-Harbor Qualified Mortgages: Of the 407 loans in the pool, 405 loans (approximately 99.6% of the pool) have application dates of Jan. 10, 2014 or later and are, therefore, subject to the ability-to-repay (ATR)/qualified mortgage (QM) Rule. All of the loans subject to this rule were classified as safe harbor QM (SHQM), for which no adjustment was made. The remaining two loans were not subject to the ATR/QM Rule as their application dates were prior to Jan. 10, 2014.

Cash Flow Structure: The transaction features a traditional senior subordinate, shifting-interest structure. Furthermore, the trust provides for expenses including indemnification amounts and costs of arbitration, to be paid by the net weighted average coupon (WAC) of the loans, which does not impact the contractual interest due on the certificates.

RATING SENSITIVITIES

Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.

Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the base case projected 6.6% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.

Fitch's stress and rating sensitivity analysis are discussed in its presale report released today 'FirstKey Mortgage Trust 2015-1', available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents from the 17g5 website available on 'www.structuredfn.com'.

Applicable Criteria and Related Research

--'Global Structured Finance Rating Criteria' (May 2014);

--'Counterparty Criteria for Structured Finance and Covered Bonds' (May 2014);

--'U.S. RMBS Master Rating Criteria' (July 2014);

--'U.S. RMBS Loan Loss Model Criteria' (November 2014);

--'U.S. RMBS Cash Flow Analysis Criteria' (April 2014);

--'Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers' (January 2014);

--'U.S. RMBS Surveillance and re-REMIC Criteria' (June 2014);

--'U.S. RMBS Qualified and Non-Qualified Mortgage Criteria' (March 2014).

Applicable Criteria and Related Research: FirstKey Mortgage Trust 2015-1 (US RMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862539

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980352

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Contacts

Fitch Ratings
Media Relations
Sandro Scenga, New York
Tel: +1 212-908-0278
Email: sandro.scenga@fitchratings.com
or
Primary Analyst
Rachel Noonan
Director
+1-212-908-0224
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Matthew Shaw
Analyst
+1-212-908-02618
or
Committee Chairperson
Rui Pereira
Managing Director
+1-212-908-0766

Contacts

Fitch Ratings
Media Relations
Sandro Scenga, New York
Tel: +1 212-908-0278
Email: sandro.scenga@fitchratings.com
or
Primary Analyst
Rachel Noonan
Director
+1-212-908-0224
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Matthew Shaw
Analyst
+1-212-908-02618
or
Committee Chairperson
Rui Pereira
Managing Director
+1-212-908-0766