NEW YORK--(BUSINESS WIRE)--Fitch rates Towd Point Mortgage Trust 2016-R1 (TPMT 2016-R1) as follows:
--$32,100,000 class A notes 'Asf'; Outlook Stable.
The following class will not be rated by Fitch:
--$30,000,000 class B notional certificates.
TPMT 2016-R1 is collateralized by five underlying classes from Towd Point Mortgage Trust 2015-6. The underlying classes include a $10 million portion from each of the class A2, M1 and M2. Additionally, the rated class benefits from all of the collections on the class X as well as a nearly $190 million portion of the X2 interest only (IO) bond. The rated bond pays interest at 3.0% while the underlying Principal & Interest (P&I) bonds pay interest at a rate of 3.75%. All excess interest collected on the underlying P&I bonds, as well as the collections from the IO bond and the class X are used to turbo down the principal balance of the rated class.
Fitch currently holds public ratings on four of the five underlying securities ranging from 'BBBsf' to 'AAAsf'. The only unrated class from the underlying is the excess cash class X.
The 'Asf' rating for the A notes reflects the credit enhancement (CE) on the underlying classes in addition to the excess interest payments above the stated 3.0% interest rate. The combination of the underlying CE in addition to the excess interest is sufficient to protect against an underlying pool expected loss of 25.5% in addition to an initial under-collateralization amount of $2.1 million. In Fitch's base case scenario, the under-collateralization is expected to be resolved by period 14 prior to any principal collections from the underlying.
KEY RATING DRIVERS
Under collateralization of Re-REMIC: At issuance the rated class is expected to be under-collateralized by $2.1 million. The difference between the class balance and the underlying collateral is made up by the presence of excess spread on the underlying bonds as well as a portion of an IO bond and an excess cashflow bond. As the full payment of principal is dependent on excess interest collections extreme reductions in expected collections could negatively pressure the rated class. Under Fitch's base case loss and timing scenario, the collateral reaches parity by month 14.
Repeat Issuer: The issuer of the Re-REMIC has issued 11 rated Re-performing Loan (RPL) transactions to date, including the underlying assets for this transaction. The underlying deals all incorporate a sequential pay structure with no advances made on delinquent loans. The underlying deals have performed well to date with losses within expectations and a build-up of CE on the rated notes. Many of the underlying classes have recently seen positive rating pressure during the most recent surveillance reviews.
RPL Collateral: The underlying transaction consists of one collateral group and was issued at the end of 2015. The pool consists of peak-vintage seasoned performing and re-performing loans. As of the November 2016 remittance period, the underlying pool had an outstanding pool factor of 90%, a serious delinquency of 2.1% and losses to date of 0.69%. The majority of the losses are from principal forgiveness as the result of PRA modifications.
No Servicer P&I Advancing: The servicers will not be advancing delinquent monthly payments of P&I on the underlying loans. As 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 servicers are obligated to advance P&I. Structural provisions and cash flow priorities, together with increased subordination, provide for ultimate payments of interest to the underlying bonds.
Underlying Sequential Pay Structure: The underlying transaction is structured as a sequential payment priority. The sequential structure allows for the underlying bonds included in this transaction to benefit from excess spread on a larger principal balance for a longer period of time resulting in a faster pay down to the rated class.
Underlying Representation Framework: Based on the R&W framework for the underlying transaction, the expected loss used in this analysis was increased in line with the adjustment made at issuance. Additionally, the underlying transaction has a reserve account that can be used to fund any repurchases for breaches, resulting in lower losses to the trust.
Due Diligence: Diligence was performed on the underlying transaction at closing. Any adjustments that were made as a result of diligence findings during the initial rating analysis were incorporated into this analysis and resulted in a modest increase to the loss expectations.
Fitch made one variation to its 'U.S RMBS Surveillance and Re-REMIC' criteria for this transaction. The variation applies to which bonds are eligible for ratings in new issue Re-REMICs. While Fitch generally limits underlying bond eligibility to senior bonds that are currently receiving principal payments, Fitch believes there are sufficient mitigating factors to provide ratings on the class. Such factors include the sequential pay structure for the underlying transaction as well as seniority of the bonds included. Also, while no principal collections on the underlying bonds are expected for the next few years, the principal balance of the rated notes is expected to pay down from day one due to the excess interest collections on the underlying.
Fitch's analysis includes rating stress scenarios from 'CCCsf' to 'AAAsf'. The 'CCCsf' scenario is intended to be the most-likely base-case scenario. Rating scenarios above 'CCCsf' are increasingly more stressful and less likely to occur. Although many variables are adjusted in the stress scenarios, the primary driver of the loss scenarios is the home price forecast assumption. In the 'Bsf' scenario, Fitch assumes home prices decline 10% below their long-term sustainable level. The home price decline assumption is increased by 5% at each higher rating category up to a 35% decline in the 'AAAsf' scenario.
Classes currently rated below 'Bsf' are at-risk to default at some point in the future. As default becomes more imminent, bonds currently rated 'CCCsf' and 'CCsf' will migrate towards 'Csf' and eventually 'Dsf'.
The ratings of bonds currently rated 'Bsf' or higher will be sensitive to future mortgage borrower behavior, which historically has been strongly correlated with home price movements. Despite recent positive trends, Fitch currently expects home prices to decline in some regions before reaching a sustainable level. While Fitch's ratings reflect this home price view, the ratings of outstanding classes may be subject to revision to the extent actual home price and mortgage performance trends differ from those currently projected by Fitch.
As the transaction is sensitive to the amount of interest collected on the underlying, additional sensitivities were performed to stress the total collections. This additional scenario assumed a 50 basis points (bps) interest rate reduction on the underlying collateral, a prepayment rate almost 3x as high as used in the standard scenarios and application of the underlying call as soon as possible. Even with these additional stresses, the rated note was still expected to repay in full.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
No third-party due diligence was provided or reviewed in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
Representations, Warranties and Enforcement Mechanisms are not taken into consideration for U.S. RMBS Resecuritizations. Any Reps and Warranties included in the underlying transaction will be a benefit for the rated classes.
Additional information is available at www.fitchratings.com.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)
Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 16 Jun 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)
U.S. RMBS Cash Flow Analysis Criteria (pub. 15 Apr 2016)
U.S. RMBS Loan Loss Model Criteria (pub. 29 Nov 2016)
U.S. RMBS Master Rating Criteria (pub. 27 Jun 2016)
U.S. RMBS Seasoned and Re-Performing Loan Criteria (pub. 12 May 2016)
U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 15 Nov 2016)
Dodd-Frank Rating Information Disclosure Form
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