Two Harbors unveils fourth jumbo RMBS

$356.33 million securitization receives AAA ratings from DBRS

Two Harbors Investment Corp (TWO) is set to bring its fourth Agate Bay Mortgage Trust residential mortgage-backed securitization to market soon. The $356.33 million Agate Bay Mortgage Trust 2014-3 is backed by 519 first-lien, fixed-rate jumbo residential mortgage loans secured primarily by one-to-two-family residences to prime borrowers.

DBRS released its presale ratings of the RMBS and issued AAA ratings to the majority of the securitization’s tranches.

DBRS cites the high quality of the underlying loans 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 writes in its presale. “In addition, the pool contains no interest?only loans and no investment properties.”

According to DBRS’ report, the securitization carries a weighted original average combined LTV of 67.6%, which is the lowest CLTV of all the Agate Bay Mortgage Trust securitizations. The previous low CLTV was 67.7% in ABMT 2014-1.

The average loan balance is $686,573, which is lower than any of the previous ABMT securitizations as well. In the previous three ABMT offerings, the lowest average loan balance was $689,393 in ABMT 2014-2.

The offering’s weighted average FICO score is 765, which indicates strong borrower credit profiles, according to DBRS. “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 offering also features structural enhancements that help make it more appealing, DBRS said.

"Compared with a pre?crisis shifting?interest structure, the transaction employs structural enhancements that include the following: a subordination floor is present to address tail risk and retain credit support, the event of a servicer loan modification, the reimbursement of servicing advances would be reduced only from the principal distribution amount,” DBRS said. “The advance reimbursements may not result in reductions in interest distribution payments.”

Also of note is the seasoning of the underlying loans in the pool, which is one month. The weighted average seasoning in the previous Agate Bay RMBS offerings is two months for ABMT 2014-2, nine months for ABMT 2014-1 and six months for ABMT 2013-1.

“The pool is on average one month seasoned, with a maximum age of three months,” DBRS said. “Except for two loans that had previous servicing transfer-related payment disruptions, no loan has had prior delinquencies since origination.”

As with previous jumbo RMBS offerings, DBRS cautions on geographic concentration of ABMT 2014-3. The ABMT 2014-3 pool has a relatively concentrated geographic composition, with California representing 43.2% of the pool and the top three states representing 63.6%, DBRS said.

Massachusetts ranked second with 11% and Virginia was third with 9.4% of the pool.

The originators for the mortgage pool are Mortgage Master (13.6%), NYCB Mortgage Company (13.2%), George Mason Mortgage (12.7%), W.J. Bradley Mortgage Capital (9.1%), Prospect Mortgage (8.0%), United Shore Financial Services (6.6%), Commerce Mortgage (6.0%), Cobalt Mortgage (5.8%), Parkside Lending (5.1%) and various other originators, each comprising less than 5% of the mortgage loans.

DBRS cautions that some of the originators in the offering have weak financial and limited securitzation history.

“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 addition, the remedies in this transaction have a backstop or guaranty by an unrated entity.”

But DBRS notes that it adjusted for those issues in its ratings.

“DBRS adjusted downward the originator scores of some of the lenders to account for the potential inability to fulfill repurchase obligations or the lack of performance history,” DBRS said.

“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.”

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