NEW YORK--(BUSINESS WIRE)--
Fitch Ratings assigns the following ratings to Agate Bay Mortgage Trust 2013-1 (ABMT 2013-1):
--$400,743,000 class A-1 certificates 'AAAsf'; Outlook Stable;
--$400,743,000 class A-IO notional certificates 'AAAsf'; Outlook Stable;
--$10,637,000 class B-1 certificates 'AAsf'; Outlook Stable;
--$8,466,000 class B-2 certificates 'Asf'; Outlook Stable;
--$6,296,000 class B-3 certificates 'BBBsf'; Outlook Stable;
--$3,473,000 class B-4 certificates 'BBsf'; Outlook Stable;
The 'AAAsf' rating on the senior certificates reflects the 7.70% subordination provided by the 2.45% B-1, 1.95% class B-2, 1.45% class B-3, 0.80% class B-4 and 1.05% class B-5. The $429,476,952 class A-IO-S notional certificate and the $4,559,489 class B-5 certificates will not be rated by Fitch.
Fitch's ratings reflect the high quality of the underlying collateral, the clear capital structure and the high percentage of loans reviewed by third party underwriters. In addition, Wells Fargo Bank, N.A. will act as the master servicer and Christiana Trust will act as the trustee for the transaction. For federal income tax purposes, elections will be made to treat the trust as one or more real estate mortgage investment conduits (REMICs).
ABMT 2013-1 will be Agate Bay Residential Mortgage Securities LLC's first transaction of prime residential mortgages. The certificates are supported by a pool of prime fully amortizing fixed-rate mortgage loans. The aggregate pool included loans originated by Guaranteed Rate, Inc. (21.3%), RPM Mortgage, Inc. (19.7%), Opes Advisors, Inc. (19.7%) and other various mortgage lending institutions, each of which contributed less than 10% to the transaction.
As of the cut-off date, the aggregate pool consisted of 549 loans with a total balance of $434,174,489; an average balance of $790,846; a weighted average original combined loan-to-value ratio (CLTV) of 69.9%, and a weighted average coupon (WAC) of 3.9%. Rate/Term and cash-out refinances account for 62.7% and 11.9% of the loans, respectively. The weighted average original FICO credit score of the pool is 770. Owner-occupied properties comprise 96.7% of the loans. The states that represent the largest geographic concentration are California (46.4%), Illinois (12.2%) and Washington (10.5%).
KEY RATING DRIVERS
High-Quality Mortgage Pool: The collateral pool consists of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage and substantial liquid reserves. A 69.9% CLTV provides a significant buffer against potential home price declines. Strong borrower quality is reflected in the 770 weighted average (WA) original FICO, $350,747 WA household income and $322,789 WA liquid reserves.
Originators with Limited Performance History: A large portion of the pool was originated by lenders with limited non-agency performance history. While the significant contribution of loans from these originators is a concern, Fitch considers the credit enhancement (CE) on this transaction sufficient to mitigate the originator risk.
High Geographic Concentration: The pools' primary concentration risk is California, where 46.4% of the properties are located. In addition, the metropolitan areas encompassing San Francisco, San Jose, Oakland and Los Angeles combine for 36.1% of the collateral balance and represent four of the top 10 regions. The regional concentration resulted in an additional penalty of roughly 15% to the pool's lifetime default expectation.
Transaction Provisions Enhance Performance: Similar to recent transactions rated by Fitch, ABMT 2013-1 contains binding arbitration provisions that may serve to provide timely resolution to representation (rep) and warranty disputes. In addition, all loans that become 120 days or more delinquent will be automatically reviewed for breaches of reps and warranties.
Moderate Due Diligence Findings: Third-party loan-level due diligence was conducted by Clayton Holdings LLC (Clayton) on 100% of the pool. While the review resulted in minimal credit and compliance findings, it identified 19% of the pool in Federal Emergency Management Agency (FEMA) designated disaster areas as part of its property valuation review. Fitch considered these findings as part of its analysis and performed sensitivities adjusting property values to account for potential damage.
Limited Operating History: Two Harbors Investment Corp. (Two Harbors) was formed in 2009 and is a publicly held REIT. While management has extensive mortgage industry experience, ABMT 2013-1 is Two Harbors' first securitization using its own depositor. Fitch conducted a conference call with Two Harbors in June 2013 to discuss its organizational structure, conduit strategy, due diligence, and property valuation approaches and methodologies. They have been active as a loan aggregator and investor in both agency and non-agency residential mortgage-backed securities (RMBS). Although the current form of Two Harbor's conduit initiative is relatively new, Fitch did not identify material weaknesses in its discussions with the company.
Robust Representation Framework: The representation, warranty and enforcement mechanism (RW&E) framework is viewed positively by the agency as it is consistent with Fitch's criteria. The transaction benefits from life of loan representations and warranties (R&W), as well as a backstop by the sponsor, TH TRS Corp., in case of insolvency of the related originator. The sponsor's repurchase obligations will also be guaranteed by its parent, Two Harbors, for the life of each loan.
Seller Interests Aligned with Investors': A Two Harbors affiliate is expected to be the initial subordinate investor in the transaction and, thus, have a direct economic interest in the performance of the transaction. As holder of the first-loss class in the transaction, the controlling holder has an incentive to maintain the credit quality of the asset pool, which would include enforcing the repurchase obligations of the contributing originators on defaulted loans.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the 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 on areas where the model projected lower home price declines than that of the overall collateral pool. The model currently projects sustainable MVDs (sMVDs) at the MSA level. These regions are Chicago-Joliet-Naperville in Illinois (10.3%) and Dallas-Plano-Irving in Texas (3.3%). Fitch conducted sensitivity analyses assuming sMVDs of 10%, 15%, and 20% for these identified metropolitan area. The sensitivity analyses indicated no impact on ratings for all bonds in each scenario.
Another sensitivity analysis was focused 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 13.0% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
In its analysis, Fitch considered placing a greater emphasis on recent economic performance in determining market value declines. While the loan loss model Fitch used looks to three years of historical data and one year of projections, this does not incorporate recent notable economic improvement. To reflect the more recent economic environment, a sensitivity analysis was performed using two years of historical economic data and two years of projections. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. The sensitivity analysis resulted in a base sMVD decline from 13.0% to 11.9%.
Additional detail on the transaction is described in the new
issue report 'Agate Bay Mortgage Trust 2013-1'.
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 24, 2013;
--'Counterparty Criteria for Structured Finance and Covered
Bonds', May 13, 2013;
--'U.S. RMBS Rating Criteria', Jul. 16, 2013;
--'U.S. RMBS Loan Loss Model Criteria - Effective August 10, 2012 to August 7, 2013', Aug. 10, 2012;
--'U.S. RMBS Cash Flow Analysis Criteria', Apr. 19, 2013;
--'U.S. RMBS Representations and Warranties Criteria', Jun. 24,
--'U.S. RMBS Originator Review and Third-Party Due Diligence
Criteria', Apr. 26, 2013;
--'U.S. Residential and Small Balance Commercial Mortgage
Servicer Rating Criteria', Jan. 31, 2011;
--'U.S. RMBS Surveillance Criteria', Oct. 11, 2012.
Applicable Criteria and Related Research:
U.S. RMBS Originator Review and Third-Party Due Diligence Criteria
U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria
U.S. RMBS Surveillance Criteria
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. RMBS Rating Criteria
U.S. RMBS Loan Loss Model Criteria -- Effective August 10, 2012 to August 7, 2013
U.S. RMBS Cash Flow Analysis Criteria
U.S. RMBS Representations and Warranties Criteria
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