NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned ratings to Oaks Mortgage Trust series 2015-2 (Oaks 2015-2) as follows:
--$228,904,000 class A-1 exchangeable certificate 'AAAsf'; Outlook Stable;
--$228,904,000 class A-X-1 notional certificate 'AAAsf'; Outlook Stable;
--$228,904,000 class A-2 exchangeable certificate 'AAAsf'; Outlook Stable;
--$228,904,000 class A-X-2 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$228,904,000 class A-X-3 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$213,577,000 class A-3 exchangeable certificate 'AAAsf'; Outlook Stable;
--$213,577,000 class A-4 exchangeable certificate 'AAAsf'; Outlook Stable;
--$213,577,000 class A-X-4 notional exchangeable certificate 'AAAsf'; Outlook Stable;
--$15,327,000 class A-5 exchangeable certificate 'AAAsf'; Outlook Stable;
--$15,327,000 class A-6 certificate 'AAAsf'; Outlook Stable;
--$15,327,000 class A-X-5 notional certificate 'AAAsf'; Outlook Stable;
--$228,904,000 class A-7 exchangeable certificate 'AAAsf'; Outlook Stable;
--$160,183,000 class A-8 exchangeable certificate 'AAAsf'; Outlook Stable;
--$160,183,000 class A-9 certificate 'AAAsf'; Outlook Stable;
--$160,183,000 class A-X-6 notional certificate 'AAAsf'; Outlook Stable;
--$53,394,000 class A-10 exchangeable certificate 'AAAsf'; Outlook Stable;
--$53,394,000 class A-11 certificate 'AAAsf'; Outlook Stable;
--$53,394,000 class A-X-7 notional certificate 'AAAsf'; Outlook Stable;
--$8,041,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$5,653,000 class B-2 certificate 'Asf'; Outlook Stable;
--$4,146,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$2,010,000 class B-4 certificate 'BBsf'; Outlook Stable;
--$1,257,000 class B-5 certificate 'Bsf'; Outlook Stable.
The $1,256,547 class B-6 certificate is not expected to be rated by Fitch.
The notes are supported by 345 prime mortgages with a total balance of approximately $251 million as of the cutoff date.
The 'AAAsf' rating on the class A notes reflects the 8.90% subordination provided by the 3.20% class B-1, 2.25% class B-2, 1.65% class B-3, 0.80% class B-4, 0.50% class B-5 and 0.50% 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
High-Quality Mortgage Collateral: The collateral pool is of very high loan quality, consisting mostly of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles and low leverage. The loan characteristics of this pool are largely similar to the previous transaction, Oaks 2015-1, as well as other post-crisis RMBS prime transactions, including a weighted average (WA) original Fair Isaac Corp. (FICO) score of 762, WA combined loan to value (CLTV) of 71.7% and WA debt-to-income (DTI) ratio of 32.7%.
Issuer with Limited Track Record: While this is the second transaction issued under the Oaks shelf, 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 on either a flow or bulk basis. Fitch conducted an aggregator review of Five Oaks and found its processes to be adequate, with its platform comparable to other aggregators of jumbo prime quality product. Third-party, loan-level due diligence conducted on 100% of the pool indicated strong underwriting controls as no material findings were noted.
Robust Representation Framework: Fitch views 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 and 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 the 100% clean due diligence review, Fitch did not make an adjustment to its loss expectations for the RW&E framework.
Unknown Originators: Over half of the loans in the pool 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 and the credit enhancement (CE) levels sufficiently mitigate any potential operational risk associated with the origination of the loans.
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.
Safe-Harbor Qualified Mortgages: Approximately 93.8% of 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. The remaining 6.2% were not subject to the ATR/QM Rule, as their application dates were prior to Jan. 10, 2014.
RATING SENSITIVITIES
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 declined (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 7.8% 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 sensitivity 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%, 31% 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 and Opus Capital Markets Consultants LLC. 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.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158
Global Structured Finance Rating Criteria (pub. 06 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368
U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973
U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868923
U.S. RMBS Master Rating Criteria (pub. 01 Oct 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=870427
U.S. RMBS Qualified and Non-Qualified Mortgage Criteria (pub. 31 Mar 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863837
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259
Related Research
Oaks Mortgage Trust 2015-2 -- Appendix
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=873202
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=993782
ABS Due Diligence Form 15E 1
ABS Due Diligence Form 15E 2
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=993782
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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