Investments

Two Harbors bringing $294 million jumbo RMBS to market

Second Agate Bay offering of 2015

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Two Harbors Investment Corp (TWO) is preparing to launch its second prime jumbo residential mortgage-backed securitization of 2015, a $294.45 million offering from Two Harbors’ Agate Bay Mortgage Trust series.

Agate Bay Mortgage Trust 2015-2 is backed by 400 loans with a total principal balance of $294,452,553 and an average loan balance of $736,131. DBRS issued a presale report for the offering and awarded more than $276 million in AAA ratings to the offering.

According to DBRS’ report, the high quality of the underlying borrowers and collateral is a significant positive of the deal.

“This transaction exhibits high-quality credit attributes, such as low loan-to-value ratios, strong borrower credit and full documentation on substantially all loans,” DBRS noted in its presale. “In addition, the pool contains no interest-only loans and no investment properties.”

The underlying loans carry a weighted-average original combined LTV of 65.5%, as calculated by DBRS, which added that the CLTV ratio suggest that the borrowers have “considerable equity” in their homes.

The weighted average FICO scores of the underlying borrowers is 765 and the offering’s primary borrowers carry a weighted average annual income of more than $264,000.

“The WA liquid reserves for the loans is approximately $328,000, which is enough to cover over six years of monthly mortgage payments,” DBRS noted. “On average, 6.9% of the loans have liquid reserves higher than their current loan balance.”

The top originators in the pool are NYCB Mortgage Company (13.5%), George Mason Mortgage (13.2%), United Shore Financial Services (11.3%), Parkside Lending (7.9%), Prospect Mortgage (7.7%), Stifel Bank and Trust (6.5%), Provident Savings Bank (5.6%), Commerce Mortgage (5.5%), Mortgage Master (5.2%), and American Pacific Mortgage Corporation (5.1%).

According to DBRS’ report, the originators will provide traditional lifetime representations and warranties without any sunset provisions to the trust.

On the other hand, the relative inexperience of some of the originators is a potential drawback of the deal, DBRS said.

“Some of the originators in the transaction may have limited history in prime jumbo securitizations and/or may potentially experience financial stress that could result in the inability to fulfill repurchase obligations as a result of breaches of representations and warranties,” DBRS said in its report.

DBRS added that all of the loans were originated to meet Two Harbors’ purchase criteria and were reviewed by a third-party due diligence firm, which found no issues with the loans.

DBRS conducted an aggregator review of the Two Harbors conduit and deems it to be operationally sound.

As with most jumbo RMBS offerings, the largest portion of the underlying loans is located in California.

The ABMT 2015-2 pool has a relatively concentrated geographic composition, with California representing 49.0% of the pool and the top three states representing 63.8%, DBRS noted.

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