Fitch Rates Agate Bay Mortgage Trust 2016-2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Agate Bay Mortgage Trust

2016-2:

--$216,392,000 class A-6 certificates 'AAAsf'; Outlook Stable;

--$72,130,000 class A-8 certificates 'AAAsf'; Outlook Stable;

--$20,234,000 class A-10 certificates 'AAAsf'; Outlook Stable;

--$308,756,000 class A-X-1 notional certificates 'AAAsf'; Outlook Stable;

--$216,392,000 class A-X-4 notional certificates 'AAAsf'; Outlook Stable;

--$72,130,000 class A-X-5 notional certificates 'AAAsf'; Outlook Stable;

--$20,234,000 class A-X-6 notional certificates 'AAAsf'; Outlook Stable;

--$5,429,000 class B-1 certificates 'AAsf'; Outlook Stable;

--$6,415,000 class B-2 certificates 'Asf'; Outlook Stable;

--$3,454,000 class B-3 certificates 'BBBsf'; Outlook Stable;

--$2,139,000 class B-4 certificates 'BBsf'; Outlook Stable.

Exchangeable Certificates:

--$308,756,000 class A-1 exchangeable certificates 'AAAsf'; Outlook Stable;

--$308,756,000 class A-2 exchangeable certificates 'AAAsf'; Outlook Stable;

--$288,522,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;

--$288,522,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;

--$216,392,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;

--$72,130,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;

--$20,234,000 class A-9 exchangeable certificates 'AAAsf'; Outlook Stable;

--$308,756,000 class A-X-2 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$288,522,000 class A-X-3 exchangeable notional certificates 'AAAsf'; Outlook Stable.

The $2,796,601 class B-5 certificates and $328,989,601 class A-IO-S notional certificates will not be rated.

KEY RATING DRIVERS

High Quality Mortgage Pool: The collateral pool consists of high-quality 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage and large liquid reserves. The pool has a weighted average (WA) FICO score of 773 and an original combined loan-to-value (CLTV) ratio of 67.6%. The collateral attributes of the subject pool are largely consistent with recent ABMT transactions issued in 2015 and 2016.

Geographic Concentration Risk: The pool's primary concentration risk is California, where approximately 48% of the collateral is located. Additionally, approximately 34% is located in the metropolitan areas encompassing Los Angeles, San Francisco and San Diego, which represent three of the top five regions in the subject pool. This concentration resulted in an additional penalty to the pool's probability of default (PD) of roughly 1.5% to its lifetime default expectation. While still a concern, the first two ABMT transactions in 2016 have shown improved geographic diversification compared with those in 2015.

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 life-of-loan representations and warranties (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 2016-2 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' purchase criteria and were reviewed by a third-party due diligence firm to TH TRS' 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 four of the top five originators, which account for approximately 38.4% 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.

RATING SENSITIVITIES

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 6.7% 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%, 32% and 51% 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 Services LLC and American Diligence, 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.

The transaction contains 43 loans (9% of the mortgage pool) with application dates on or after Oct. 3, 2015, and therefore are subject to the TILA-RESPA Integrated Disclosure (TRID) rule. All Clayton loans were reviewed by Clayton. No compliance exceptions were found in 11 of the 43 loans, resulting in compliance grades of 'A'. The issues identified in the remaining 32 loans were addressed through re-disclosure and reimbursement as applicable; these loans received grades of 'B' after the re-disclosure.

Consistent with defined methods of error resolution under the rule, all numerical errors identified were re-disclosed within an allowable time frame, and appropriate reimbursements to the borrower were made where necessary. All non-numerical clerical errors identified were re-disclosed within 60 days of consummation. Fitch feels the TRID noncompliance risk to investors for this transaction is immaterial due to the low percentage of loans subject to the rule, the low limit on statutory damages and the good-faith efforts to resolve the issues identified. Therefore, Fitch did not adjust its loss expectations.

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.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 19 Dec 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=838868

Exposure Draft: U.S. RMBS Loan Loss Model Criteria (pub. 08 Feb 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=874961

Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952

Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (pub. 23 Apr 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864368

U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973

U.S. RMBS Loan Loss Model Criteria (pub. 03 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868923

U.S. RMBS Master Rating Criteria (pub. 21 Jan 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876378

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 01 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866259

Related Research

Agate Bay Mortgage Trust 2016-2 -- Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878466

Additional Disclosures

Dodd-Frank Rating Information Disclosure Formhttps://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1001767

ABS Due Diligence Form 15E 1https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1001767&flm_nm=15e_1001767_1.pdf

ABS Due Diligence Form 15E 2https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1001767&flm_nm=15e_1001767_2.pdf

ABS Due Diligence Form 15E 3https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1001767&flm_nm=15e_1001767_3.pdf

ABS Due Diligence Form 15E 4https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1001767&flm_nm=15e_1001767_4.pdf

Solicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1001767

Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20160331005777/en/

Fitch Ratings
Primary Analyst:
Christine Yan, +1-212-908-0838
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Matthew Shaw, +1-212-908-0218
Associate Director
or
Committee Chairperson:
Suzanne Mistretta, +1-212-908-0639
Senior Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
[email protected]

Source: Fitch Ratings

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• NCC's Executive Director and Psychometrician Bresney Fanning Assumes Presidency of the American Board of Nursing Specialties (ABNS)
• SpecialtyRx Fills Booth 713 at FHCA 2026 with 20x20 Island Exhibit
• HIVE Reports Q1 2027 Revenue of $79.1 Million; Contracted GPU Cloud ARR(1) Reaches Approximately $110 million