Fitch Assigns Expected Ratings to Firstmac Mortgage Funding Trust No.4 Series 2-2016
OREANDA-NEWS. Fitch Ratings has assigned expected ratings to Firstmac Mortgage Funding Trust No.4 Series 2-2016's mortgage-backed pass-through and scheduled amortisation floating-rate notes. The issuance consists of notes backed by Australian prime residential mortgages originated by Firstmac nominee originators. The ratings are as follows:
AUD277.50m Class A-1a notes: 'AAA(EXP)sf'; Outlook Stable
AUD20.00m Class A-1b notes: 'AAA(EXP)sf'; Outlook Stable
AUD24.50m Class A-2 notes: 'AAA(EXP)sf'; Outlook Stable
AUD18.20m Class B notes: 'NR(EXP)sf'
AUD4.55m Class C notes: 'NR(EXP)sf'
AUD3.85m Class D notes: 'NR(EXP)sf'
AUD1.40m Class E notes: 'NR(EXP)sf'
The notes will be issued by Firstmac Fiduciary Services Pty Ltd in its capacity as trustee of Firstmac Mortgage Funding Trust No. 4 Series 2-2016.
At the cut-off date, 17 February 2016, the total collateral pool consisted of 1,180 loans to 956 borrowers, totalling approximately AUD349.8m.
KEY RATING DRIVERS
Sufficient Subordination: The class A-1(a and b) and A-2 notes benefit from credit enhancement of 15.0% and 8.0% respectively, provided by the subordinate notes, which is sufficient to support ratings independent of credit provided by Lenders Mortgage Insurance (LMI).
Conservative Pool Characteristics: The weighted average (WA) seasoning of the portfolio is 11 months, with a current weighted average loan-to-value ratio (LVR) of 67.5% and WA Indexed LVR of 67.0%. The average obligor current loan size is AUD365,935. Investment loans represent 36.2% of the pool by balance, with interest-only loans at 44.2%. LMI is present on 16.7% of the pool.
Sequential/Pro-Rata Paydown: Classes A-1 and A-2 will initially receive principal in set proportions, with classes B, C, D and E notes receiving principal sequentially, prior to the Pro-Rata Test conditions being met. Once pro-rata tests have been met, principal will be allocated on a pro-rata basis across all notes, except class E. The class E notes will receive no principal allocation until all other notes have been fully repaid.
Excess Spread Trap: The transaction benefits from a spread reserve account funded by excess income that is available to cover both liquidity shortfalls and losses. Prior to the call date, the spread reserve account traps excess spread up to a maximum of AUD2.0m if certain conditions are met.
EXPECTED RATING SENSITIVITIES
Unexpected decreases in residential property values, increases in the frequency of foreclosures and loss severity on defaulted mortgages could produce loss-levels higher than Fitch's base-case, which could in turn result in negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings to increased defaults and decreased recovery rates over the life of the transaction.
The analysis found the class A-1a and A-1b notes' ratings remained stable under each of Fitch's medium and severe individual default and recovery scenarios (15% and 30% increase in defaults or decrease in recoveries, respectively), while the rating of the class A-2 notes remained stable only under Fitch's medium stress (15% increase in defaults or decrease in recoveries) and is susceptible to a rating downgrade under more severe stress (30% increase in defaults or decrease in recoveries).
In a combined stress scenario (both 15% increase in defaults and 15% decrease in recoveries) ratings remained stable for the class A-1a and A-1b notes, while the class A-2 notes are susceptible to downgrade. Under a more severe multiple stress scenario (both 30% increase in defaults and 30% decrease in recoveries), the rating of class A-1a, A-1b and A-2 notes lowered by two notches to 'AAsf'.
The transaction structure supports an LMI-independent rating for the class A-1a, A-1b and A-2 notes; therefore LMI is not required to support the ratings due to the level of credit support provided by the lower notes.
DUE DILIGENCE USAGE
No third party due diligence was provided or reviewed in relation to this rating action.
Fitch conducted a file review sampling 10 loan files focusing on the underwriting procedures conducted by Firstmac compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.
Key Rating Drivers and Expected Rating Sensitivities are further discussed in the corresponding presale report entitled, "Firstmac Mortgage Funding Trust No.4 Series 2-2016", published today. Included as an appendix to the report are a description of the representations, warranties and enforcement mechanisms.