After participating in two jumbo mortgage bond offerings brought by other issuers in 2014, Five Oaks Investment Corp. (OAKS) is launching a jumbo mortgage bond of its own.

The offering, which will be issued as Oaks Mortgage Trust Series 2015-1, is backed by 383 mortgages with a total balance of approximately $267.2 million. The loans carry an average balance of $697,618.

Both Fitch Ratings and Moody’s Investors Service have presale reports out on the offering, with both awarding AAA ratings to the offering.

Both Fitch and Moody’s cite Five Oaks’ youth as a potential concern, since the real estate investment trust began acquiring and securitizing jumbo prime mortgage loans just last year.

Fitch and Moody’s both note that they reviewed Five Oaks and found that the REIT meets the industry standards needed to source mortgage loans. In its report, Fitch said that Five Oaks has an overall assessment of “average.”

Moody’s said that they met with Five Oaks, reviewed the REIT’s guidelines, and “conducted additional calls to understand their program and procedures,” finding them to be “adequate.”

On the underlying loans themselves, both Fitch and Moody’s say that the collateral quality is strong.

“The collateral pool consists substantially of 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage and liquid reserves,” Fitch noted in its report.

“The loan characteristics of this pool are largely similar to other post-crisis residential mortgage-backed securitization prime transactions, including a weighted average original FICO score of 766, WA combined loan to value of 69.9% and WA debt-to-income ratio of 32.2%,” Fitch continued. “Third-party, loan-level due diligence was conducted on 100% of the pool with no material findings, indicating strong underwriting controls.”

According to Moody’s report, tthere are 28 originators in the transaction including HomeStreet Bank, representing 19.29% of the outstanding principal balance of the mortgage loans; Stonegate Mortgage Corporation representing 10.71% of the principal balance of the mortgage loans; Provident Funding Associates representing 8.37% of the principal balance of the mortgage loans; Pacific Union Capital representing 7.60% of the principal balance of the mortgage loans; Wintrust Mortgage representing 7.52% of the principal balance of the mortgage loans, RPM Mortgage representing 6.01% of the principal balance of the mortgage loans, and First Trade Union Bank representing 5.7% of the principal balance of the mortgage loans. The remainder of the mortgage loans were originated by various originators, none of which originated more than 5% of the principal balance of the mortgage loans.

According to its report, Fitch has not reviewed many of the originators, which is a potential concern.

“Roughly one-third of the pool is composed of loans from two originators that were reviewed and assessed as average originators of prime jumbo collateral by Fitch; however, a majority of the loans were originated by lenders that have not been reviewed by Fitch and may have limited track records in originating jumbo prime collateral,” Fitch said. “Fitch believes the third-party due diligence results with immaterial findings and the credit enhancement levels sufficiently mitigate any potential operational risk associated with the origination of the loans.”

On the other hand, as with most recent jumbo mortgage bonds, the underlying borrowers carry significant liquid assets. According to Fitch’s report, approximately 31.4% of the borrowers have liquid reserves exceeding five years of monthly mortgage payments, and approximately 5.6% have reserve amounts greater than their mortgage loan balance. The WA reserve to loan ratio is roughly 35.5%. The WA annual income for borrowers in this pool is approximately $291,000.

Another potential concern is the geographic concentration of the deal, Fitch noted.

The mortgage pool’s primary concentration risk is in California, where 50% of the properties are located,” Fitch said in its report. “In addition, six of the top 10 metro areas are located in California. The top three metro areas combined account for 48.5% of the pool: Los Angeles (23.7%); San Francisco (12.7%); and Boston (12.1%). Pools concentrated in geographic regions may be sensitive to deteriorating regional economic conditions, fluctuations in regional risk factors or other risks like unexpected industry shifts or natural disasters.”

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