NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to rate Towd Point Mortgage Trust 2015-1 (TPMT 2015-1) as follows:
--$209,750,000 class A1 notes 'AAAsf'; Outlook Stable;
--$34,628,000 class A2 notes 'AAsf'; Outlook Stable;
--$23,152,000 class A3 notes 'Asf'; Outlook Stable;
--$25,328,000 class A4 notes 'BBBsf'; Outlook Stable;
--$22,954,000 class A5 notes 'BBsf'; Outlook Stable;
--$21,766,000 class A6 notes 'Bsf'; Outlook Stable;
--$244,378,000 class AE1 exchangeable notes 'AAsf'; Outlook Stable;
--$267,530,000 class AE2 exchangeable notes 'Asf'; Outlook Stable;
--$57,780,000 class AE3 exchangeable notes 'Asf'; Outlook Stable;
--$292,858,000 class AE4 exchangeable notes 'BBBsf'; Outlook Stable;
--$83,108,000 class AE5 exchangeable notes 'BBBsf'; Outlook Stable;
--$48,480,000 class AE6 exchangeable notes 'BBBsf'; Outlook Stable;
--$315,812,000 class AE7 exchangeable notes 'BBsf'; Outlook Stable;
--$106,062,000 class AE8 exchangeable notes 'BBsf'; Outlook Stable;
--$71,434,000 class AE9 exchangeable notes 'BBsf'; Outlook Stable;
--$48,282,000 class AE10 exchangeable notes 'BBsf'; Outlook Stable;
--$127,828,000 class AE11 exchangeable notes 'Bsf'; Outlook Stable;
--$93,200,000 class AE12 exchangeable notes 'Bsf'; Outlook Stable;
--$70,048,000 class AE13 exchangeable notes 'Bsf'; Outlook Stable;
--$44,720,000 class AE14 exchangeable notes 'Bsf'; Outlook Stable;
--$337,578,000 class A exchangeable notes 'Bsf'; Outlook Stable.
The $24,537,000 class B1 notes, the $33,639,964 class B2 notes, the $58,176,964 class B exchangeable notes and the $395,754,964 class C exchangeable notes are not expected to be rated by Fitch.
The notes are supported by 2,095 re-performing mortgages with a total balance of approximately $395.8 million (which includes $11.8 million or 3% of the aggregate pool balance in non-interest bearing deferred principal amounts) as of the cutoff date.
The AAAsf rating on Class A1 notes reflects the 47% subordination provided by the 8.75% class A2, 5.85% class A3, 6.40% class A4, 5.80% class A5, 5.50% class A6 and 6.20% class B1 and 8.50% class B2 notes.
Fitch's ratings on the Class A notes reflect the credit attributes of the underlying collateral, the quality of the servicer, Select Portfolio Servicing, Inc. rated RPS1- by Fitch, the representation (rep) and warranty framework, minimal due diligence findings and sequential pay structure.
KEY RATING DRIVERS
Distressed Performance History: The collateral pool consists primarily of peak-vintage seasoned re-performing loans (RPLs) including loans that have been paying for the past 24 months, which Fitch identifies as 'clean current' (83.7%) and loans that are current but have recent delinquencies, referred to as "dirty current" (16.3%). No loans were past due 30 or more days as of the cutoff date and roughly 88% have received modifications.
No Servicer P&I Advances: The servicer will not be advancing delinquent monthly payments of principal and interest (P&I). Because P&I advances made on behalf of loans that become delinquent and eventually liquidate reduce liquidation proceeds to the trust, the loan-level loss severities (LS) are less for this transaction than for those where the servicer is obligated to advance P&I. Structural provisions and cashflow priorities, together with increased subordination, provide for timely payments of interest to the highly rated classes.
Potential Interest Deferrals Below 'AAsf': To address the lack of an external P&I advance mechanism, principal otherwise distributable to the notes may be used to pay monthly interest. Because timeliness of interest is consistent with AAAsf and AAsf ratings, all principal collections on the loans may be used to pay interest to the A1 and A2 notes first (sequentially) before any payments are made to notes rated 'Asf' or below. Principal is only available to pay interest on notes rated 'Asf' and below once the more senior classes have been repaid in full.
As a result, the class A3 through A6 notes may experience long periods of interest deferral that will generally not be repaid until such note becomes the most senior outstanding. Fitch will consider ratings up to 'Asf' on notes that incur deferrals if certain conditions are met.
Tier 2 Representation Framework: Fitch generally considers the representation, warranty, and enforcement mechanism (RW&E) construct for this transaction to be generally consistent with a Tier 2 framework due to the inclusion of knowledge qualifiers and the exclusion of loans from certain reps as a result of third party due diligence findings. As a result, Fitch increased its 'AAAsf' loss expectations by over 2.0% to account for potential increase in defaults and losses arising from weaknesses in the reps.
Limited Life of Rep Provider: Cerberus RMBS Opportunities Fund, L.P., as rep provider, will only be obligated to repurchase a loan due to breaches through January 2016. Thereafter, a reserve fund will be available to cover amounts due to the class A1, A2, A3, and A4 noteholders for loans identified as having rep breaches. Amounts on deposit in the reserve fund as well as the increased level of subordination will be available to cover additional defaults and losses resulting from rep weaknesses or breaches occurring after January 2016.
Minimal Due Diligence Findings: Due diligence was generally conducted on 100% of the pool covering regulatory compliance, pay history, servicing comments, the presence of key documents in the loan file and data integrity. Overall, the results of the third-party reviews generally reflected limited findings. Roughly 5.5% of loans had compliance violations where the statute of limitations had not expired. Fitch increased its loss severity expectations for these loans to account for the risk of a foreclosure challenge and timeline delays which resulted in an upward adjustment of roughly 40bps to the pool's weighted average (WA) LS.
Timing of Recordation and Document Remediation: An updated title and tax search as well as a review to confirm that the mortgage note and subsequent assignments were recorded in the relevant local jurisdictions was also performed. Of the 2,095 loans comprising the pool, 1,881 loans have one or more mortgage assignments that are expected to be sent for recordation no later than Feb. 13, 2015, the majority of which should be completed by March 31, 2015. Fitch assumed a further 12-month extension of liquidation timelines for the remaining loans for which more time may be required to obtain the appropriate signatures needed in order for intervening assignments to be recorded in the relevant jurisdiction.
In addition, 986 note endorsement exceptions were identified on 712 loans that are expected to be remedied within 60 days of the transactions closing. While the expected timelines for recordation and remediation are viewed by Fitch as reasonable, Fitch believes that FirstKey's oversight for completion of these activities serves as a strong mitigant to potential delays. In addition, the obligation for Cerberus RMBS Opportunities Fund, L.P. to repurchase loans for which assignments are not recorded and endorsements are not completed by the payment date in January 2016 aligns the issuer's interests regarding completion of recordation with those of noteholders.
PD Adjustment for Clean Current Loans: Fitch's analysis of the performance of clean current loans -- i.e. loans with clean payment histories for the past 24 months -- found that its loan loss model projected probability of defaults (PDs) for those loans were more punitive than those indicated by Fitch's roll rate projections. To account for this, Fitch reduced the lifetime default expectations for the 83.7% clean current loans in the pool by approximately 16%.
Sequential Pay Structure: The transaction cash flow is based on a sequential pay structure, whereby the subordinate classes do not receive principal until the senior classes are re-paid in full. Losses are allocated in reverse sequential order. The provision to re-allocate principal to pay interest on the class A1 and A2 notes prior to other principal distributions is highly supportive of timely interest payments to those classes in the absence of servicer advancing.
Deferred Amounts: Non-interest bearing principal forbearance amounts totaling $11.8 million (3% of the aggregate pool balance as of the cut-off date) are outstanding on 633 loans in the pool. Fitch included the deferred amounts when calculating the borrower's LTV and sLTV, despite the lower payment and amounts not being owed during the term of the loan. The inclusion resulted in higher PDs and LSs then if there were no deferrals. Fitch believes that borrower default behavior will resemble that of the higher LTV, as exit strategies (i.e. sale or refinancing) will be limited relative to those borrowers with more equity in the property.
Third-Party Loan Sale Provisions: The transaction permits non-performing loans and loans classified as real estate owned (REO) to be sold to unaffiliated third parties to maximize liquidation proceeds to the issuer. FirstKey as asset manager is charged with responsibility for arranging such sales. To ensure that loan sales do not result in losses to the trust that exceed Fitch's expectations, the sales price is floored at a minimum value equal to 63.7% of the loan's unpaid principal balance, which approximates Fitch's 'Bsf' LS expectation.
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 model-projected 4.4% for this pool. The analysis indicates 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 Towd Point 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);
--'U.S. RMBS Re-Performing Loan Criteria' (November 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: Towd Point Mortgage Trust 2015-1 (US RMBS)