NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: SoFi Mortgage Trust 2016-1 (US RMBS)
https://www.fitchratings.com/site/re/891802
Fitch Ratings expects to rate SoFi Mortgage Trust 2016-1 (SFPMT 2016-1) as follows:
--$123,952,000 class 1A-1 exchangeable certificates 'AAAsf'; Outlook Stable;
--$123,952,000 class 1A-2 exchangeable certificates 'AAAsf'; Outlook Stable;
--$112,144,000 class 1A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$112,144,000 class 1A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$84,108,000 class 1A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$84,108,000 class 1A-6 certificates 'AAAsf'; Outlook Stable;
--$28,036,000 class 1A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$28,036,000 class 1A-8 exchangeable certificates 'AAAsf'; Outlook Stable;
--$11,808,000 class 1A-M exchangeable certificates 'AAAsf'; Outlook Stable;
--$11,808,000 class 1A-MF certificates 'AAAsf'; Outlook Stable;
--$34,626,000 class 2A-1 exchangeable certificates 'AAAsf'; Outlook Stable;
--$34,626,000 class 2A-2 exchangeable certificates 'AAAsf'; Outlook Stable;
--$31,328,000 class 2A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$31,328,000 class 2A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$23,496,000 class 2A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$23,496,000 class 2A-6 certificates 'AAAsf'; Outlook Stable;
--$7,832,000 class 2A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$7,832,000 class 2A-8 exchangeable certificates 'AAAsf'; Outlook Stable;
--$3,298,000 class 2A-M exchangeable certificates 'AAAsf'; Outlook Stable;
--$3,298,000 class 2A-MF certificates 'AAAsf'; Outlook Stable;
--$15,106,000 class A-M exchangeable certificates 'AAAsf'; Outlook Stable;
--$123,952,000 class 1A-2X notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$112,144,000 class 1A-4X notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$84,108,000 class 1A-6X notional certificates 'AAAsf'; Outlook Stable;
--$28,036,000 class 1A-8X notional certificates 'AAAsf'; Outlook Stable;
--$11,808,000 class 1A-MI notional certificates 'AAAsf'; Outlook Stable;
--$34,626,000 class 2A-2X notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$31,328,000 class 2A-4X notional exchangeable certificates 'AAAsf'; Outlook Stable;
--$23,496,000class 2A-6X notional certificates 'AAAsf'; Outlook Stable;
--$7,832,000 class 2A-8X notional certificates 'AAAsf'; Outlook Stable;
--$3,298,000 class 2A-MI notional certificates 'AAAsf'; Outlook Stable;
--$3,967,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$2,363,000 class B-2 certificates 'Asf'; Outlook Stable;
--$1,182,000 class B-3 certificates 'BBBsf'; Outlook Stable;
--$928,000 class B-4 certificates 'BBsf'; Outlook Stable;
--$760,000 class B-5 certificates 'Bsf'; Outlook Stable.
Fitch will not be rating the following certificates:
--$1,012,946 class B-6 certificates.
KEY RATING DRIVERS
High-Quality Mortgage Pool (Positive): The collateral attributes of the pool are among the strongest of those securitized and rated by Fitch. The collateral pool consists of high-quality 15- and 30-year fully amortizing loans to borrowers with strong credit profiles, low leverage and adequate liquid reserves. The pool has a weighted average (WA) FICO score of 777 and an original combined loan-to-value (CLTV) ratio of 56.5%.
Geographically Concentrated Pool (Concern): The pool has a relatively low number of loans (270) and is heavily concentrated in California (78%). Concentration penalties and adjustments based on deterministic tests resulted in roughly a 2.0x increase to the mortgage pool loss assumptions.
New Lender (Neutral): SoFi is an online financial services provider that began mortgage loan originations in 2014. Applications are sourced exclusively through its online retail platform using a proprietary automated underwriting system (AUS) imbedded into the company's website. While originally rooted as a marketplace or peer-to-peer lender, SoFi's funding strategy has evolved to more traditional sources and is currently not materially different from many other mortgage originators. Based on a satisfactory operational assessment and a 100% due diligence review, Fitch believes industry historical data can be used as a reliable proxy to analyze the credit risk of the pool.
Earthquake Risk (Concern): The pool has a high concentration of borrowers in areas that are susceptible to large-scale earthquakes. The U.S. Geological Survey estimates the chance of a 6.7 magnitude (or greater) earthquake occurring within the next 10 years to be roughly 15% for the area within 50 kilometers of the most concentrated zip code in the pool. Based on the historical experience of loans affected by the Northridge earthquake in 1994, Fitch believes investment grade classes will likely be protected against a similarly sized earthquake due to increased credit enhancement and the unusually strong credit quality of the borrowers.
Solid Due Diligence Results (Positive): Loan-level due diligence reviews were conducted on 100% of the pool in accordance with Fitch's criteria. Roughly 15% of the loans received an 'A' grade and the remainder were graded 'B'. The 123 loans were assigned a grade 'B' due to nonmaterial credit findings, such as initial applications with missing/incorrect detail and mortgage history exceptions. All of these loans contained compensating factors such as large reserves, low LTV, low DTIs and high FICOs. In Fitch's view, the results of the diligence indicate acceptable controls and adherence to underwriting guidelines.
Tier I Representation and Warranty Framework (Neutral): Fitch considers the transaction's representation, warranty and enforcement (RW&E) mechanism framework to be consistent with Tier I quality. While transactions with a framework identified by Fitch as Tier I may benefit from a reduction to PD to reflect lower default risk due to strong repurchase framework, no credit is being applied to the transaction due to the financial opinion of the originator as rep provider.
Straightforward Deal Structure (Positive): The mortgage cash flow and loss allocation are based on a senior-subordinate, shifting-interest Y structure with full cross collateralization, whereby the subordinate classes receive only scheduled principal and are locked out from receiving unscheduled principal or prepayments for five years. The lockout feature helps maintain subordination for a longer period should losses occur later in the life of the deal. The applicable credit support percentage feature redirects subordinate principal to classes of higher seniority if specified credit enhancement (CE) levels are not maintained.
High CE Floor (Positive): To mitigate tail risk, which arises as the pool seasons and fewer loans are outstanding, a subordination floor of 2.25% of the original balance will be maintained for the certificates. The 2.25% floor is one of the larger floors, on a percentage basis, seen in recent Fitch-rated transactions. Additionally, there is no early stepdown test that might allow principal prepayments to subordinate bondholders earlier than the five-year lockout schedule.
CRITERIA APPLICATION
The transaction was analyzed with a variation to the standard loss assumptions described in Fitch's 'U.S. RMBS Loan Loss Model Criteria' report. While the loan attributes included in this pool are well represented by the historical dataset that was used to regress the U.S. RMBS Loan Loss model, the pool is disproportionately concentrated with loans having superior credit attributes where the model's data set is more widely distributed across the credit spectrum. As a result, the model output may be slightly underestimating the default probability for these loans. To account for this risk, the loss assumptions floored the loan-level model output default probability at 5% at 'AAAsf' down to 1% at 'BBsf' and no floor at 'Bsf'. The result of this variation likely resulted in loss assumptions two notches higher than what would have been the case from model only output.
RATING SENSITIVITIES
Fitch's analysis incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level. 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 may be considered in the surveillance of the transaction. Three sets of sensitivity analyses were conducted at the state and national levels to assess the effect of higher MVDs for the subject pool.
This defined stress sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes market value declines of 10%, 20% and 30%, in addition to the model-projected 6.9%. The analysis indicates that there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
Fitch's stress and rating sensitivity analysis are discussed in its presale report released today 'SoFi Mortgage Trust 2016-1', available at 'www.fitchratings.com' or by clicking on the link.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Clayton Holdings LLC (Clayton). The third-party due diligence described in Form 15E focused on a compliance review, credit review and valuation review. The due diligence companies performed a review on 100% of the loans. Fitch considered this information in its analysis and it did not have an effect on Fitch's analysis or conclusions. Fitch believes the overall results of the review generally reflected strong underwriting controls.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.
Additional information is available at www.fitchratings.com.
Sources of Information:
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 provided on the transaction's 17g5 website available on 'www.structuredfn.com'.
Applicable Criteria
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
https://www.fitchratings.com/site/re/886006
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
https://www.fitchratings.com/site/re/883130
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
https://www.fitchratings.com/site/re/864368
U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)
https://www.fitchratings.com/site/re/880006
U.S. RMBS Loan Loss Model Criteria (pub. 29 Nov 2016)
https://www.fitchratings.com/site/re/889746
U.S. RMBS Master Rating Criteria (pub. 01 Dec 2016)
https://www.fitchratings.com/site/re/891440
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 15 Nov 2016)
https://www.fitchratings.com/site/re/888698
Related Research
SoFi Mortgage Trust 2016-1 -- Appendix
https://www.fitchratings.com/site/re/891836
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016335
ABS Due Diligence Form 15E 1
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016335
Endorsement Policy
https://www.fitchratings.com/regulatory
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