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No Surprises in Two Harbors' First RMBS of 2015

Two Harbors’ first residential mortgage securitization of the year doesn’t exactly break any new ground.

The $279.5 million Agate Bay Mortgage Trust 2015-1 is backed by the same type of collateral as the three deals that the real estate investment trust brought to market in 2014: 30-year, fixed-rate mortgages to borrowers with strong credit, significant amounts of equity in their property, and plenty of cash reserves.

Moreover, virtually all of the 406 loans in the pool, or 98.1%, are designated as “qualified mortgages” benefitting from legal safe harbor under ability-to-repay rules. The remaining loans were taken out before Jan. 10, 2014 and therefore are not subject to ability-to-repay rules, according to a presale report published by Fitch Ratings.

Fitch has assigned an ‘AAA’ rating to the senior tranches, which benefit from credit enhancement of 6.65%.

Borrowers in the pool have a weighted average FICO of 774 and have borrowed 67% of the purchase price of their homes, on a weighted average basis. While the average amount of liquid reserves is lower for this pool relative to other recent transactions with comparable profiles, over 25% of the borrowers have reserves excess of 30% of their mortgage amount, according to the presale report.

Agate Bay Mortgage Trust 2015-1 is only the second rated private label mortgage securitization to hit the market this year. It is markedly different than the deal that FirstKey Mortgage launched last week backed by mortgages taken out before the financial crisis that were once behind on payments. Market players expect to see more of securitizations of re-performing residential mortgages this year.

Just 27 deals totaling $8.6 billion were completed in 2014, down from 31 $13.1 billion in 2013, according to data compiled by Fitch Ratings. However, the 11 transactions from six issuers in the final quarter of 2014 was the most active issuance quarter for the prime jumbo sector since the financial crisis. In a separate report on RMBS trends published today, the rating agency said that this increase reflects a broadening of the number of issuers active in the market.

“Another development worth noting is that different names are tapping the RMBS market with increasing frequency, with six issuers coming to market with new deals,” managing director Grant Bailey said in the trends report. He said that more new names are likely to test the market this year.

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