OREANDA-NEWS. Fitch Ratings has assigned final ratings to Firstmac Mortgage Funding Trust No.4 Series 3-2016's mortgage-backed pass-through floating-rate notes. The issuance consists of notes backed by a pool of first-ranking Australian residential full-documentation mortgage loans originated by Firstmac nominee originators. The ratings are as follows:

AUD510.00m Class A-1 notes: 'AAAsf'; Outlook Stable

AUD42.00m Class A-2 notes: 'AAAsf'; Outlook Stable

AUD35.40m Class B notes: 'NRsf'

AUD6.60m Class C notes: 'NRsf'

AUD4.56m Class D notes: 'NRsf'

AUD1.44m Class E notes: 'NRsf'

The notes are issued by Firstmac Fiduciary Services Pty Ltd in its capacity as trustee of Firstmac Mortgage Funding Trust No.4 Series 3-2016. This is a separate and distinct trust and series created under a master trust deed between the issuer and Firstmac Limited.

KEY RATING DRIVERS

Sufficient Subordination: The class A-1 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.

Conservative Pool Characteristics: The weighted average (WA) seasoning of the portfolio is 16 months, with a current WA loan-to-value ratio (LVR) of 67.5% and WA indexed LVR of 66.3%. The average obligor current loan size is AUD359,736, while investment loans represent 38.2% of the pool by balance, with interest-only loans at 39.6%. LMI is present on 36.5% of the pool.

Sequential/Pro-Rata Paydown: Classes A-1 and A-2 will initially receive principal in set proportions, with the class 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 Reserve: 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.

RATING SENSITIVITIES

Unexpected decreases in residential property value, increases in the frequency of foreclosures, and loss severity on defaulted mortgages could produce loss levels higher than Fitch's base case, which could result in negative rating actions on the notes.

Fitch has evaluated the sensitivity of the ratings assigned to Firstmac Mortgage Funding Trust No.4 Series 3-2016 to increased defaults and decreased recovery rates over the life of the transaction. Its analysis found that the notes' ratings remained stable under the mild (15% increase) and severe (30% increase) default scenarios and the mild (15% decrease) and severe (30% decrease) recovery scenarios. Under the combined scenario where Fitch's expectations on recovery rates are reduced by 30% and default rates are increased by 30%, the class A-1 notes' rating would decline to 'AA+sf' and the class A-2 notes' rating to 'AAsf'.

The transaction structure supports an LMI-independent rating for the class A-1 and A-2 notes; therefore, LMI is not required to support the rating due to the level of credit support provided by the lower notes.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled "Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions," dated 31 May 2016.

DATA ADEQUACY

Fitch sought to receive a third-party assessment conducted on the asset portfolio information, but none was made available to Fitch.

As part of its ongoing monitoring, Fitch conducted a review of a small targeted sample of Firstmac's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio.

Overall, Fitch's assessment of the asset pool information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable.

Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding new issue report available via the link above.

SOURCES OF INFORMATION

The information below was used in the analysis.

- Loan-by-loan data provided by Firstmac as at 31 August 2016

- Transaction documents provided by the issuer's counsel King & Wood Mallesons

- Historical performance provided by Firstmac up to 31 July 2016

The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.