NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Oaks Mortgage Trust Series 2015-1 (Oaks 2015-1) as follows:
--$244,610,000 class A-1 exchangeable certificate 'AAAsf'; Outlook Stable;
--$244,610,000 class A-X-1 notional certificate 'AAAsf'; Outlook Stable;
--$244,610,000 class A-2 exchangeable certificate 'AAAsf'; Outlook Stable;
--$244,610,000 class A-X-2 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$244,610,000 class A-X-3 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$277,109,000 class A-3 exchangeable certificate 'AAAsf'; Outlook Stable;
--$277,109,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;
--$277,109,000 class A-X-4 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$17,501,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;
--$17,501,000 class A-6 certificate 'AAAsf'; Outlook Stable;
--$17,501,000 class A-X-5 notional certificate 'AAAsf'; Outlook Stable;
--$244,610,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;
--$170,332,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;
--$170,332,000 class A-9 certificate 'AAAsf'; Outlook Stable;
--$170,332,000 class A-X-6 notional certificate 'AAAsf'; Outlook Stable;
--$56,777,000 class A-10 exchangeable certificate 'AAAsf'; Outlook Stable;
--$56,777,000 class A-11 certificate 'AAAsf'; Outlook Stable;
--$56,777,000 class A-X-7 notional certificate 'AAAsf'; Outlook Stable;
--$7,748,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$6,146,000 class B-2 certificate 'Asf'; Outlook Stable;
--$3,740,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$2,004,000 class B-4 certificate 'BBsf'; Outlook Stable;
--$1,336,000 class B-5 certificate 'Bsf'; Outlook Stable.
The $1,603,616 class B-6 certificate is not expected to be rated by Fitch.
The notes are supported by 383 prime mortgages with a total balance of approximately $267 million as of the cutoff date.
The 'AAAsf' rating on the class A notes reflects the 8.45% subordination provided by the 2.90% class B-1, 2.30% class B-2, 1.40% class B-3, 0.75% class B-4, 0.50% class B-5 and 0.60% class B-6 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
Strong Collateral Attributes: The collateral pool consists substantially of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage, and liquid reserves. The loan characteristics of this pool are largely similar to other post-crisis RMBS prime transactions including a weighted average (WA) Original Fair Isaac Corp. (FICO) score of 766, WA combined loan to value (CLTV) of 69.9%, and WA debt-to-income (DTI) ratio of 32.2% Third-party, loan-level due diligence was conducted on 100% of the pool with no material findings indicating strong underwriting controls.
Geographic Concentration Risk: Approximately 50% of the loans in the pool are located in California. The top three metropolitan statistical areas (MSAs) account for approximately 48.5% of the pool. The largest concentration at the MSA level is in Los Angeles (23.7%) followed by San Francisco (12.7%) and Boston (12.1%). To account for the pool's geographic concentration, Fitch applied a penalty of 1.19x to its lifetime default expectations.
Safe-Harbor Qualified Mortgages: Approximately 79.1% of the loans in 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 20.9% were not subject to the ATR/QM Rule as their application dates were prior to Jan. 10, 2014.
Issuer with Limited Track Record: Under its jumbo prime mortgage acquisition program, Five Oaks Acquisition Corp. (Five Oaks) began to acquire and securitize loans in 2014 and therefore has a limited track record of acquiring mortgage loans through either a flow or bulk basis. Fitch conducted an aggregator review of Five Oaks and found it processes to be adequate and that its platform meets the industry standards.
Robust Representation Framework: Fitch considers the transaction's representation, warranty and enforcement mechanism (RW&E) construct to be consistent with what the agency considers to be a Tier 1 framework. The transaction benefits from life of loan reps as well as a backstop by the seller, Five Oaks, in case of insolvency or dissolution of an originator. Given the assessment of the RW&E framework, Fitch's internal credit opinion of the seller as backstop, and 100% clean due diligence review, Fitch did not make an adjustment to its loss expectations for the RW&E framework.
Unknown Originators: Roughly one third of the pool comprises loans from two originators that have been reviewed and assessed as average originators of prime jumbo collateral by Fitch; however, a majority of the loans were originated by lenders that have not been reviewed by Fitch and may have limited track records in originating jumbo prime collateral. Fitch believes the third-party due diligence results with immaterial findings the credit enhancement (CE) on this transaction is sufficient to mitigate the potential operational risk.
Due Diligence Exception: As part of the due diligence review scope for property valuation, Fitch expects to see a secondary valuation obtained by the review firm in accordance with its 'U.S. RMBS Master Rating Criteria' (July 2014). A secondary valuation product was not pulled by Opus for the loans it reviewed; rather Opus's internal staff of licensed appraisers performed an internal desk review of the appraisals provided. While Fitch views this as positive, a slight adjustment to Fitch's probability of default (PD) was made to these loans to account for the minor criteria exception.
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.
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 'Oaks Mortgage Trust Series 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' (March 2015);
--'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 2015);
--'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 2015).
Applicable Criteria and Related Research: Oaks Mortgage Trust Series 2015-1 (US RMBS)