Fitch Expects to Rate Towd Point Mortgage Trust 2015-5; Presale Issued
OREANDA-NEWS. Fitch Ratings expects to rate Towd Point Mortgage Trust 2015-5 (TPMT 2015-5) as follows:
--$592,750,000 class A1 notes 'AAAsf'; Outlook Stable;
--$68,416,000 class A2 notes 'AAsf'; Outlook Stable;
--$73,463,000 class M1 notes 'Asf'; Outlook Stable;
--$62,808,000 class M2 notes 'BBBsf'; Outlook Stable;
--$60,565,000 class B1 notes 'BBsf'; Outlook Stable;
--$51,593,000 class B2 notes 'Bsf'; Outlook Stable;
--$592,750,000 class A1A exchangeable notes 'AAAsf'; Outlook Stable;
--$592,750,000 class A1B exchangeable notes 'AAAsf'; Outlook Stable;
--$592,750,000 class A1C exchangeable notes 'AAAsf'; Outlook Stable;
--$592,750,000 class X1 notional exchangeable notes 'AAAsf'; Outlook Stable;
--$592,750,000 class X2 notional exchangeable notes 'AAAsf'; Outlook Stable;
--$592,750,000 class X3 notional exchangeable notes 'AAAsf'; Outlook Stable;
--$661,166,000 class A3 exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class A3A exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class A3B exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class A3C exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class X4 notional exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class X5 notional exchangeable notes 'AAsf'; Outlook Stable;
--$661,166,000 class X6 notional exchangeable notes 'AAsf'; Outlook Stable;
--$734,629,000 class A4 exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class A4A exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class A4B exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class A4C exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class X7 notional exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class X8 notional exchangeable notes 'Asf'; Outlook Stable;
--$734,629,000 class X9 notional exchangeable notes 'Asf'; Outlook Stable;
The following classes will not be rated by Fitch:
--$111,035,000 class B3 notes;
--$100,942,369 class B4 notes.
The notes are supported by one collateral group which consisted of 5,421 re-performing mortgages with a total balance of approximately $1.12 billion (which includes $50.7 million, or 4.5%, of the aggregate pool balance in non-interest-bearing deferred principal amounts) as of the cut-off date.
The 'AAAsf' rating on class A1 notes reflects the 47.15% subordination provided by the 6.10% class A2, 6.55% class M1, 5.60% class M2, 5.40% class B1, 4.60% class B2, 9.90% class B3 and 9.00% class B4 notes.
Fitch's ratings on the class notes reflect the credit attributes of the underlying collateral, the quality of the servicers, Select Portfolio Servicing, Inc. (rated 'RPS1-' by Fitch and the representation (rep) and warranty framework, minimal due diligence findings and the sequential pay structure.
KEY RATING DRIVERS
Distressed Performance History: The collateral pool consists primarily of peak-vintage seasoned re-performing loans (RPLs), including loans that have been paying for the past 24 months, which Fitch identifies as "clean current" (73.6%), and loans that are current but have recent delinquencies identified as "dirty current" (26.4%). All loans were current as of the cutoff date, and no loans were past due 90 or more days over the past 24 months. 93.1% of the loans have received modifications.
'D' Grade for Compliance/High-Cost Testing: The third-party review (TPR) firm's due diligence review resulted in 147 loans graded 'D', the majority of which had late fee charges that violated state regulation or had HUD1 Settlement Statement (HUD1) exceptions. 104 loans were missing modification documents or a signature on modification documents. For these loans, timelines were extended by an additional three months.
No Servicer P&I Advances: The servicer will not be advancing delinquent monthly payments of principal and interest (P&I). As P&I advances made on behalf of loans that become delinquent and eventually liquidate reduce liquidation proceeds to the trust, the loan-level loss severities (LS) are less for this transaction than for those where the servicer is obligated to advance P&I. Structural provisions and cash flow priorities, together with increased subordination, provide for timely payments of interest to the 'AAAsf' and 'AAsf' rated classes.
Sequential-Pay Structure: The transaction's cash flow is based on a sequential-pay structure, whereby the subordinate classes do not receive principal until the senior classes are repaid in full. Losses are allocated in reverse-sequential order. Furthermore, the provision to re-allocate principal to pay interest on the 'AAAsf' and 'AAsf' rated notes prior to other principal distributions is highly supportive of timely interest payments to those classes, in the absence of servicer advancing.
Potential Interest Deferrals: To address the lack of an external P&I advance mechanism, principal otherwise distributable to the notes may be used to pay monthly interest. Principal is available to pay interest on notes. As a result, bonds may experience long periods of interest deferral that will generally not be repaid until such note becomes the most senior outstanding.
Under Fitch's 'Criteria for Rating Caps and Limitations in Global Structured Finance Transactions,' dated May 2014, the agency may assign ratings of up to 'Asf' on notes that incur deferrals if such deferrals are permitted under terms of the transaction documents, provided such amounts are fully recovered with interest accrued thereon prior to legal final maturity under the relevant rating stress.
Limited Life of Rep Provider: Cerberus Global Residential Mortgage Opportunity Fund, L.P., as rep provider, will only be obligated to repurchase a loan due to breaches through November 2016. Thereafter, a reserve fund will be available to cover amounts due to noteholders for loans identified as having rep breaches. Amounts on deposit in the reserve fund, as well as the increased level of subordination, will be available to cover additional defaults and losses resulting from rep weaknesses or breaches occurring after November 2016.
Tier 2 Representation Framework: Fitch generally considers the representation, warranty and enforcement (RW&E) mechanism construct for this transaction to be generally consistent with a
Tier 2 framework due to the inclusion of knowledge qualifiers and the exclusion of loans from certain reps as a result of third-party due diligence findings. Thus, Fitch increased its 'AAAsf' loss expectations by approximately 307 bps to account for a potential increase in defaults and losses arising from weaknesses in the reps.
Timing of Recordation and Document Remediation: An updated title and tax search, as well as a review to confirm that the mortgage and subsequent assignments were recorded in the relevant local jurisdictions, was also performed. The review confirmed that all mortgages and subsequent assignments were recorded in the relevant local jurisdiction or were in the process of being recorded.
While the expected timelines for recordation and remediation are viewed by Fitch as reasonable, Fitch believes that FirstKey's oversight for completion of these activities serves as a strong mitigant to potential delays. In addition, the obligation of Cerberus Global Residential Mortgage Opportunity Fund, L.P. to repurchase loans, for which assignments are not recorded and endorsements are not completed by the payment date in November 2016, aligns the issuer's interests regarding completing the recordation process with those of noteholders.
PD Adjustment for Clean Current Loans: Fitch's analysis of the performance of clean current loans found that, for these loans, its loan loss model projected probability of defaults (PDs) that were more punitive than indicated by Fitch's roll rate projections. To account for this, Fitch reduced the lifetime default expectations by approximately 17.3% for the loans that have a clean payment history for at least the past 24 months.
Deferred Amounts: Non-interest-bearing principal forbearance amounts totaling $50.7 million (4.5% of the unpaid principal balance) are outstanding on 905 loans. Fitch included the deferred amounts when calculating the borrower's LTV and sLTV, despite the lower payment and amounts not being owed during the term of the loan. The inclusion resulted in higher PDs and LS than if there were no deferrals. Fitch believes that borrower default behavior will resemble that of the higher LTVs, including the deferred balances, as exit strategies (i.e. sale or refinancing) will be limited relative to those borrowers with more equity in the property.
Third-Party Loan Sale Provisions: The transaction permits nonperforming loans and loans classified as real estate-owned (REO) to be sold to unaffiliated third parties to maximize liquidation proceeds to the issuer. FirstKey as asset manager is charged with responsibility for arranging such sales. To ensure that loan sales do not result in losses to the trust that exceed Fitch's expectations, the sale price is floored at a minimum value equal to 53.61% of the unpaid principal balance, which approximates Fitch's 'Bsf' LS expectations.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 6.3%. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.
DUE DILIGENCE USAGE
Fitch was provided with due diligence information, as well as the final Form 15E, from American Mortgage Consultants (AMC)and JCIII & Associates (JCIII). The due diligence focused on regulatory compliance, pay history, servicing comments, the presence of key documents in the loan file and data integrity. In addition, Avenue365 and JCIII (Stewart Lender Services provided reports) were retained to perform an updated title and tax search, as well as a review to confirm that the mortgage and subsequent assignments were recorded in the relevant local jurisdictions.
The servicing comment review was completed on sample (approximately 25% of the loans). Given the performance of the loans - 90% loans have been current for the past 12 months (and some for 36 months) and were confirmed via the pay history review to be as such - Fitch determined this to be a mitigating factor to the sample size and that no additional adjustments were needed.
Fitch considered this information in its analysis and based on the findings, Fitch made minor adjustments to its analysis. 104 loans were found to have an exception due to missing modification documents or a missing signature on modification documents. For these loans, timelines were extended by an additional three months.