Investments

Two Harbors bringing another jumbo RMBS to market

$374.34 million securitization receives AAA ratings from DBRS

At the tail end of July, Two Harbors Investment Corp (TWO) brought its second Agate Bay Mortgage Trust residential mortgage-backed securitization to market. The $267.67 million Agate Bay Mortgage Trust 2014-1 was backed by first-lien, fixed-rate jumbo residential mortgage loans secured primarily by one-to-two-family residences to prime borrowers.

Now, Two Harbors is set to bring its third Agate Bay securitization to market, in the form of Agate Bay Mortgage Trust 2014-2. The $374.34 million RMBS is backed by 543 loans with an average loan balance of $689,393.

DBRS has weighed in with its presale ratings and awarded AAA ratings to most of the securitization’s tranches.

DBRS noted the high-quality credit attributes of the borrowers as a strength 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 said in its presale report. “In addition, the pool contains no interest-only loans and no investment properties.”

According to DBRS’ report, Agate Bay Mortgage Trust 2014-2 features a weighted average collateralized LTV of 70.5%, a weighted average debt-to-income ratio of 31.5% and a weighted average FICO score of 766.

DBRS also notes the quality of the borrowers as a positive of the deal. “The mortgage loans in the transaction were generally originated to high-income borrowers with considerable reserves on average, primarily through retail channels,” DBRS said. “The loans that are subject to the Qualified Mortgage and Ability-to-Repay rules are categorized as Safe Harbor.”

According to DBRS’ report, 98.6% of the pool qualifies as QM Safe Harbor, with only 1.4% not subject to QM rules. In ABMT 2014-1, only 51.8% of the pool qualified as QM Safe Harbor, with 48.2% not subject to QM.

Also of note is the seasoning of the underlying loans in the pool, which is two months. The weighted average seasoning in the previous Agate Bay RMBS offerings is nine months for ABMT 2014-1 and six months for ABMT 2013-1.

“The pool is on average two months seasoned, with a maximum age of three months,” DBRS noted on ABMT 2014-2. “No loan has had prior delinquencies since origination.”

As with most jumbo securitizations, a high concentration of the collateral is from California. “The ABMT 2014-2 pool has a relatively concentrated geographic composition, with California representing 43.1% of the pool and the top three states representing 62.7%,” DBRS noted.

Washington is second on the list, with 10.4% of the pool, and Massachusetts is third, with 9.2% of the pool.

DBRS did caution that some of the mortgage originators in the transaction may have a limited history in prime jumbo securitizations and other originators may potentially experience “financial stress” that could result in an inability to fulfill repurchase obligations.

From DBRS’ report:

DBRS adjusted the originator scores of some of the lenders to account for the potential inability to fulfill repurchase obligations or the lack of performance history. A lower originator score results in increased default and loss assumptions and provides additional cushions for the rated securities.

Third-party due diligence was conducted on 100% of the loans included in the pool. A comprehensive due diligence review mitigates the risk of future representations and warranties violations.

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

The top four originators in the securitization are Mortgage Master (14.8%), George Mason Mortgage (14.5%), American Pacific Mortgage Corporation (10.3%), and NYCB Mortgage Company (9.0%).

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