FirstKey Mortgage is teeing up its first securitizing a of prime jumbo, 30-year residential mortgages.

In most respects, these loans are safer than the collateral backing FirstKey's previous RMBS, which was backed by reperforming loans.

But DBRS and Fitch Ratings, which are rating the $300 million FirstKey Mortgage Trust 2015-1, are concerned that the level of protection offered in the issuer’s representation, warranty and enforcement framework stacks up poorly compared to other recent prime jumbo deals.

Most prime jumbo conduit securitizations issued recently provide representations and warranties backstop in the event of an originator’s bankruptcy or insolvency proceedings; but this transaction relies solely on EverBank (for the loans originated by EverBank) or FirstKey (for all other loans) to honor representations and warranties, thus creating only a single layer of protection against breaches of representations and warranties.

As a result DBRS and Fitch both made adjustments to their loss expectations to account for the possibility of slightly higher defaults and losses arising from FirstKey or EverBank’s inability to repurchase loans due to breaches.

Barclays Capital is the lead manager on the deal.

The entire pool is comprised of loans that pay both principal and balance through their entire term. The loans are made to borrowers with strong credit profiles, low leverage and ample liquid reserves. Borrowers have a weighted average (WA) FICO score of 763, WA loan to value of 68.1%, and WA debt-to-income (DTI) ratio of 32.3%.

CMG Financial and Ever Bank contributed, together, 22.6% of the loans in the pool. Everrbank is servicing its loans and FirstKey will service the rest. The lenders have a limited non-agency performance history, said Fitch Ratings in a presale report, however this risk is mitigated by the fact that First Key performed 100% due diligence on the loans in the pool.

FirstKey obtained the loans in the pool on both a flow and bulk purchase basis. The transaction is only the second RMBS for the issuer. “FirstKey launched their conduit for non-conforming mortgage business in late 2013 and therefore has a limited and unproven track record of acquiring mortgage loans through either a flow or bulk basis,” stated Fitch in the presale report.

Most loans in the pool (approximately 99.6%) have application dates of Jan. 10, 2014 or later and are subject to the ability- to-repay rules. These loans all classified for a legal safe harbor. The remaining two loans were not subject to the ability to repay rules as their application dates were prior to Jan. 10, 2014.

DBRS plans to rate the class A securities ‘AAA’; it will not rate the subordinate tranches.

Fitch Ratings will rate most of the capital structure with the exception of the class B5 notes.. The rating agency assigned preliminary ratings of  ‘AAA’  to the class A notes, ‘AA’ ratings to the class B1 notes, ‘A’ ratings to class B2 notes, ‘BB’ ratings to class B4 notes.

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