Two Harbors brings $268 million prime jumbo RMBS to market

Agate Bay Mortgage Trust 2014-1 receives AAA ratings from S&P

Two Harbors Investment Corp (TWO) is set to bring its second Agate Bay Mortgage Trust residential mortgage-backed securitization to market soon. The $267.67million RMBS is backed by first-lien, fixed-rate jumbo residential mortgage loans secured primarily by one-to-two-family residences to prime borrowers.

The pool of mortgages is split into two groups. Group 1 has a closing pool balance of $162 million based on 216 loans with an average loan balance of $749,800. The weighted average of the current collateralized loan-to-value ratio is 68.8% and a weighted FICO average of 772.

Group 2 has a closing pool balance of $105.7 million based on 118 loans with an average loan balance of $895,800. The weighted average of the current collateralized loan-to-value ratio is 62.6% and a weighted FICO average of 766.

All of the loans in the two pools are 30-year fixed rate loans and all of the loans are current.

Standards & Poors Ratings Services has awarded primarily AAA ratings to the securitization’s classes due to the high quality of the collateral, among other positive indicators.

S&P’s presale reports lists the following as some of the strengths of the securitization:

  • The mortgage pool contains borrowers with low current cumulative loan-to-value ratios, high average FICO scores (no loan at origination had an underwritten FICO score below 700), and a median multiple of liquid cash reserves to current mortgage payments of 33x. This collateral pool has characteristics that are, in our view, substantially better from a credit perspective than our archetypical pool, as reflected in the above collateral summary.
  • Due diligence was performed on 100% of the loans in the pool by a third-party due diligence provider from our list of reviewed providers, which encompasses regulatory compliance, credit (underwriting) compliance, property valuations, and pay history reviews. The results are consistent with high-quality underwriting.

But as with any RMBS transaction, there are some potential drawbacks as well.

From S&P’s presale report:

  • Historical performance information related to the sponsor's flow purchase program is very limited, as the sponsor has only issued a single mortgage securitization before series 2014-1 in 2013. However, our assessment of the sponsor and other participants and the commensurate increase to expected losses compensates for the lack of performance history, given the credit quality of the assets.
  • Certain geographic concentration exists within the pool, and the top three states account for more than two-thirds by balance. We believe that the additional loss coverage required by our geographic concentration factor compensates for this risk.
  • Some of the originators providing representations and warranties are smaller, unrated entities that may be financially unable to repurchase loans. However, if an originator is unable to repurchase loans because of insolvency or bankruptcy or is dissolved or liquidated, the sponsor will be obligated to repurchase on their behalf. Given the assets' credit quality, we believe the repurchase risk is minimal. The level of third-party due diligence performed on the pool and the increased loss expectations compensates for these potential R&W repurchase risks.

There are six mortgage originators that funded more than 5% of the underlying collateral. RPM Mortgage (12.8%), NYCB Mortgage (10.8%), Cobalt Mortgage (10.8%), George Mason Mortgage (10.7%), Commerce Mortgage (5.7%), and W.J. Bradley Mortgage Capital (5.1%).

Cenlar acts as servicer on 100% of the loans. 

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