NEW YORK--(BUSINESS WIRE)--(This release amends the criteria listed for the release published Jan. 4, 2016 to remove 'Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds' (December 2014).
Fitch Ratings expects to rate Agate Bay Mortgage Trust 2016-1 as follows:
--$197,937,000 class A-6 certificates 'AAAsf'; Outlook Stable;
--$65,979,000 class A-8 certificates 'AAAsf'; Outlook Stable;
--$20,418,000 class A-10 certificates 'AAAsf'; Outlook Stable;
--$284,334,000 class A-X-1 notional certificates 'AAAsf'; Outlook Stable;
--$197,937,000 class A-X-4 notional certificates 'AAAsf'; Outlook Stable;
--$65,979,000 class A-X-5 notional certificates 'AAAsf'; Outlook Stable;
--$20,418,000 class A-X-6 notional certificates 'AAAsf'; Outlook Stable;
--$7,009,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$5,333,000 class B-2 certificates 'Asf'; Outlook Stable;
--$3,962,000 class B-3 certificates 'BBBsf'; Outlook Stable;
--$1,676,000 class B-4 certificates 'BBsf'; Outlook Stable.
--$284,334,000 class A-1 exchangeable certificates 'AAAsf'; Outlook Stable;
--$284,334,000 class A-2 exchangeable certificates 'AAAsf'; Outlook Stable;
--$263,916,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;
--$263,916,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;
--$197,937,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;
--$65,979,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;
--$20,418,000 class A-9 exchangeable certificates 'AAAsf'; Outlook Stable;
--$284,334,000 class A-X-2 exchangeable notional certificates 'AAAsf'; Outlook Stable;
--$263,916,000 class A-X-3 exchangeable notional certificates 'AAAsf'; Outlook Stable.
The $2,438,767 class B-5 certificates and $304,752,767 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 fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage and liquid reserves. All loans have a 30-year original term to maturity. The pool has a weighted average (WA) FICO score of 772 and an original combined loan-to-value (CLTV) ratio of 67.5%. While the average amount of liquid reserves is slightly lower for this pool relative to other recent Agate Bay transactions with comparable profiles, but more than 28% of the borrowers still have reserves in excess of 30% of their mortgage amount.
Geographic Concentration Risk: The pool's primary concentration risk is in California, where 49.5% of the properties are located. In addition, the metropolitan areas encompassing San Francisco, Los Angeles, San Jose and San Diego combine for 40% of the collateral balance and represent four of the top 10 regions. While this is a slight improvement over prior Agate Bay transactions, the regional concentration resulted in an additional penalty to the pool's lifetime probability of default (PD) of roughly 3%.
Robust Representation Framework: Fitch considers the transaction's representation, warranty and enforcement (RW&E) mechanism framework to be consistent with 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, in case of insolvency or dissolution of the related originator. Similar to recent transactions rated by Fitch, ABMT 2016-1 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's purchase criteria and were reviewed by a third-party due diligence firm to TH TRS's guidelines with no material findings. TH TRS is a wholly owned subsidiary of Two Harbors Investment Corp. In addition, Fitch conducted an onsite review or in-depth call with three of the top five originators which account for approximately 30.5% 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 affect 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.
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%, 30% and 48% could potentially lower the 'AAAsf' rated class one rating category, to non-investment grade, and to 'CCCsf'.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information from Clayton Holdings 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.
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 -- Effective Oct. 1, 2015 to Jan. 21, 2016 (pub. 01 Oct 2015)
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)
Agate Bay Mortgage Trust 2016-1 -- Appendix
Dodd-Frank Rating Information Disclosure Form
ABS Due Diligence Form 15E 1
ABS Due Diligence Form 15E 2
ABS Due Diligence Form 15E 3
ABS Due Diligence Form 15E 4