FirstKey becomes latest to offer jumbo securitizations

$286 million RMBS receives AAA ratings

There’s a new player in jumbo mortgage securitizations, FirstKey Mortgage. The company, which is a nonbank correspondent lender that has been in business since 2010, is preparing to launch its first securitization,

FirstKey is a subsidiary of FirstKey Holdings, which is indirectly majority-owned by funds managed by Cerberus Capital Management.

In addition to originating mortgages, FirstKey also purchases and aggregates loans. Late last year, FirstKey launched its conduit for non-conforming mortgage business.

And now it’s ready to offer up its first securitization, which is built on 401 first-lien, jumbo residential mortgage loans with an aggregate outstanding principal balance of $285,984,195.

The pool’s average loan balance is $713,178 and the underlying borrowers carry a weighted average original FICO score of 767. The pool’s weighted average coupon is 4.319%, the weighted average loan-to-value ratio is 70.4% and the weighted average debt-to-income ratio is 33%.

DBRS, Kroll Bond Rating Agency, and Fitch Ratings have all issued presale reports for the FirstKey offering and awarded AAA ratings to the offering’s largest class, citing the high quality of the borrower pool as a positive of the deal.

“The quality of the borrowers in FirstKey 2014-1 is strong, as evidenced by WA original and current credit scores of 767 and 765, respectively,” KBRA said in its presale report.

“Despite the fact that borrower incomes are relatively high, most loans bear prudent debt-to-income ratios, with a WA DTI of 33.0%. Additionally, income and assets for all borrowers have been well documented and verified.”

In its presale report, Fitch said that the collateral pool consists of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage, and substantial liquid reserves.

“Borrowers with substantial liquid reserves are generally better positioned to withstand a temporary income disruption and have a lower risk of default,” Fitch said.

“Approximately 39% of the borrowers have liquid reserves exceeding five years of monthly mortgage payments and approximately 9% have reserve amounts greater than their mortgage loan balance. The WA reserve to loan ratio is roughly 45.3%. The WA annual income for borrowers in this pool approximately $363,000.”

DBRS also noted that the underlying loans carry a clean payment history. “The pool is on average four months seasoned, with a maximum age of 17 months,” DBRS said. “The payment histories on the loans are substantially clean. Except for one loan that had a previous servicing transfer-related payment disruption, no other loans have had prior delinquencies since origination.”

On the other hand, all of the ratings agencies express some concern given that this is FirstKey’s first securitization. “(FirstKey) has a limited and unproven track record of acquiring mortgage loans through either a flow or bulk basis,” Fitch said in its report. “Fitch conducted an aggregator review and it is Fitch’s opinion that FirstKey meets the industry standards needed to source mortgage loans and has an overall assessment of Average.”

The ratings agencies also cite FirstKey’s inexperience as a concern respective to the deal’s representation and warranty structure.

“The representation, warranty, and enforcement mechanism framework is viewed positively by the agency as it is consistent with Fitch’s criteria,” Fitch said.

“However, FirstKey does not meet the criteria’s financial condition threshold. As a result, Fitch made an adjustment to its loss expectations to account for the possibility of slightly higher defaults and losses arising from FirstKey’s inability to repurchase loans due to breaches. The adjustment considered the 100% due diligence review as well as the high quality of the mortgage loans.”

KBRA and DBRS also adjusted their ratings to account for the single layer of protection. “DBRS adjusted the originator scores of the mortgage loans downward to account for FirstKey’s potential inability to fulfill repurchase obligations.” DBRS said. “A lower originator score results in increased default and loss assumptions and provides additional protections for the rated securities.”

KBRA noted the geographic concentration of the deal as a negative credit driver.

“The FirstKey 2014-1 pool exhibits moderate geographic concentration with 51.7% of the pool comprised of mortgages on properties located in California,” KBRA said.

"The top three states account for 66.8% of the pool, while 38.5% are located in the top three core based statistical areas. To account for the risk associated with geographic concentration, the expected loss levels were adjusted upward based on KBRA’s methodology. This resulted in an absolute increase of 0.81% at the ‘AAA’ level, representing a 17.0% change over the base level.”

The originators for the mortgage pool are CMG Mortgage (13.8%); Cornerstone Home Lending (9.3%); Bank of Internet Federal Bank (5.4%); Excel Mortgage Servicing d/b/a Impac Mortgage Corporation (5%); and various other originators, each comprising less than 5% of the mortgage loans.

The loans will be serviced by Cenlar FSB. Wells Fargo Bank will act as the master servicer, securities administrator and custodian.

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