NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Agate Bay Mortgage Trust 2015-5 as follows:
--$194,489,000 class A-6 certificates 'AAAsf'; Outlook Stable;
--$64,829,000 class A-8 certificates 'AAAsf'; Outlook Stable;
--$20,063,000 class A-10 certificates 'AAAsf'; Outlook Stable;
--$279,381,000 class A-X-1 notional certificates 'AAAsf'; Outlook Stable;
--$194,489,000 class A-X-4 notional certificates 'AAAsf'; Outlook Stable;
--$64,829,000class A-X-5 notional certificates 'AAAsf'; Outlook Stable;
--$20,063,000 class A-X-6 notional certificates 'AAAsf'; Outlook Stable;
--$6,888,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$5,240,000 class B-2 certificates 'Asf'; Outlook Stable;
--$3,743,000 class B-3 certificates 'BBB'sf'; Outlook Stable;
--$1,797,000 class B-4 certificates 'BBsf'; Outlook Stable.
--$279,381,000 class A-1 exchangeable certificates 'AAAsf'; Outlook Stable;
--$279,381,000 class A-2 exchangeable certificates 'AAAsf'; Outlook Stable;
--$259,318,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$259,318,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$194,489,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$64,829,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$20,063,000 class A-9 exchangeable certificates 'AAAsf'; Outlook Stable;
--$279,381,000 class A-X-2 exchangeable notional certificates 'AAAsf'; Outlook Stable;
--$279,381,000 class A-X-3 exchangeable notional certificates 'AAAsf'; Outlook Stable.
The $2,395,737 class B-5 certificates and $299,444,737 class A-IO-S notional certificates will not be rated.
KEY RATING DRIVERS
High-Quality Mortgage Pool: The collateral pool consists of very high-quality 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage and liquid reserves. The pool has a weighted average (WA) FICO score of 770 and an original combined loan-to-value (CLTV) ratio of 65%. The average amount of liquid reserves is slightly higher for this pool relative to other recent transactions with comparable profiles; over 26.9% of the borrowers have reserves in excess of 30% of their mortgage amount.
Geographic Concentration Risk: The pool's primary concentration risk is California, where 50% of the properties are located. In addition, the metropolitan areas encompassing, Los Angeles, San Francisco and San Jose combine for 39.2% of the collateral balance and represent three of the top 10 regions. The regional concentration resulted in an additional penalty to the pool's probability of default (PD) of roughly 13% to its lifetime default expectation.
Robust Representation Framework: Fitch considers the transaction's representation, warranty and enforcement (RW&E) mechanism framework to be consistent with a Tier 1 quality. The transaction benefits from a life-of-loan representation and warranty (R&W), as well as a backstop by the seller, TH TRS Corp., in case of insolvency or dissolution of the related originator. Similar to recent transactions rated by Fitch, ABMT 2015-5 contains binding arbitration provisions that may serve to provide timely resolution to R&W disputes.
Originators with Limited Performance History: Many of the loans were originated by lenders with a limited non-agency performance history. However, all the loans were originated to meet TH TRS' purchase criteria and were reviewed by a third-party due diligence firm to TH TRS' guidelines with no material findings. TH TRS is a wholly owned subsidiary of Two Harbors Investment Corp. In addition, Fitch conducted an in-depth call with three of the top five originators which account for 33% of the pool.
Extraordinary Expense Treatment: The trust provides for expenses, including indemnification amounts and costs of arbitration, to be paid by the net WA coupon (WAC) of the loans, which does not impact the contractual interest due on the certificates. Furthermore, the expenses to be paid from the trust are capped at $300,000 per annum ($125,000 for the trustee), which can be carried over each year, subject to the cap until paid in full.
Safe-Harbor Qualified Mortgages: All 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 the loans subject to this rule were classified as safe harbor QM (SHQM), for which no adjustment was made.
Retail Treatment: 76% of the mortgage pool was originated directly by the lender through a retail channel. While loans originated directly through the retail channel have historically outperformed loans originated indirectly through brokers or correspondents, Fitch typically does not apply a retail benefit to the probability of default for loans originated by lenders that Fitch has not reviewed. However, for this transaction Fitch applied the retail benefit to all loans from un-reviewed originators based on third-party due diligence that confirmed the accuracy of the origination channel designation.
After Fitch determines credit ratings through a rating stress scenario analysis, additional sensitivity analyses are considered. The analyses provide a defined stress sensitivity to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at issuance as well as a defined sensitivity that demonstrates the stress assumptions required to reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
The defined stress sensitivity analysis focuses on 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 model projected 8.2% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted defined rating sensitivities analyses which determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For example, additional MVDs of 6%, 30% and 49% could potentially lower the 'AAAsf' rated class one rating category, to non-investment grade, and to 'CCCsf', respectively.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from Clayton Holdings LLC (Clayton). The due diligence focused on a compliance, credit, valuation and data integrity review. Fitch considered this information in its analysis and the findings did not have an adverse impact on our analysis.
Fitch received certifications indicating that the loan-level due diligence was conducted in accordance with Fitch's published standards for credit, property valuation and legal/regulatory compliance. The certifications also stated that the company performed its work in accordance with the independence standards, per Fitch's criteria.
Additional information is available at www.fitchratings.com.
Agate Bay Mortgage Trust 2015-5 (US RMBS)
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)
U.S. RMBS Master Rating Criteria (pub. 12 Jun 2015)
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)
Agate Bay Mortgage Trust 2015-5 -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E
ABS Due Diligence Form 15E
ABS Due Diligence Form 15E