Fitch Rates Towd Point Mortgage Trust 2015-2

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings and Rating Outlooks to Towd Point Mortgage Trust 2015-2 (TPMT 2015-2):

Group 1 Notes:

--$360,755,000 class 1-A1 notes 'AAAsf'; Outlook Stable;

--$43,262,000 class 1-A2 notes 'AAsf'; Outlook Stable;

--$35,753,000 class 1-M1 notes 'Asf'; Outlook Stable;

--$51,127,000 class 1-M2 notes 'BBBsf'; Outlook Stable;

--$36,468,000 class 1-B1 notes 'BBsf'; Outlook Stable;

--$41,116,000 class 1-B2 notes 'Bsf'; Outlook Stable;

--$360,755,000 class 1-A1E1 exchangeable notes 'AAAsf'; Outlook Stable;

--$360,755,000 class 1-A1E1X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$360,755,000 class 1-A1E2 exchangeable notes 'AAAsf'; Outlook Stable;

--$360,755,000 class 1-A1E2X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$360,755,000 class 1-A1E3 exchangeable notes 'AAAsf'; Outlook Stable;

--$360,755,000 class 1-A1E3X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$404,017,000 class 1-A2E exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E1 exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E1X notional exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E2 exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E2X notional exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E3 exchangeable notes 'AAsf'; Outlook Stable;

--$404,017,000 class 1-A2E3X notional exchangeable notes 'AAsf'; Outlook Stable.

Group 2 Notes:

--$166,380,000 class 2-A1 notes 'AAAsf'; Outlook Stable;

--$16,187,000 class 2-A2 notes 'AAsf'; Outlook Stable;

--$11,806,000 class 2-M1 notes 'Asf'; Outlook Stable;

--$10,954,000 class 2-M2 notes 'BBBsf'; Outlook Stable;

--$9,493,000 class 2-B1 notes 'BBsf'; Outlook Stable;

--$7,302,000 class 2-B2 notes 'Bsf'; Outlook Stable;

--$166,380,000 class 2-A1E1 exchangeable notes 'AAAsf'; Outlook Stable;

--$166,380,000 class 2-A1E1X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$166,380,000 class 2-A1E2 exchangeable notes 'AAAsf'; Outlook Stable;

--$166,380,000 class 2-A1E2X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$166,380,000 class 2-A1E3 exchangeable notes 'AAAsf'; Outlook Stable;

--$166,380,000 class 2-A1E3X notional exchangeable notes 'AAAsf'; Outlook Stable;

--$182,567,000 class 2-A2E exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E1 exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E1X notional exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E2 exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E2X notional exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E3 exchangeable notes 'AAsf'; Outlook Stable;

--$182,567,000 class 2-A2E3X notional exchangeable notes 'AAsf'; Outlook Stable.

The following classes will not be rated by Fitch:

Group 1 Notes:

--$71,507,000 class 1-B3 notes;

--$75,087,130 class 1-B4 notes;

--$311,058,130 class 1-ME1 exchangeable notes;

--$275,305,130 class 1-ME2 exchangeable notes;

--$224,178,130 class 1-BE1 exchangeable notes;

--$187,710,130 class 1-BE2 exchangeable notes;

--$146,594,130 class 1-BE3 exchangeable notes.

Group 2 Notes:

--$9,128,000 class 2-B3 notes;

--$12,173,866 class 2-B4 notes;

--$60,856,866 class 2-ME1 exchangeable notes;

--$49,050,866 class 2-ME2 exchangeable notes;

--$38,096,866 class 2-BE1 exchangeable notes;

--$28,603,866 class 2-BE2 exchangeable notes;

--$21,301,866 class 2-BE3 exchangeable notes.

The notes are supported by two uncrossed collateral groups. Group 1 consisted of 3,121 re-performing mortgages with a total balance of approximately $715.1 million (which includes $35.0 million or 4.9% of the aggregate pool balance in non-interest bearing deferred principal amounts) as of the cutoff date. Group 2 consists of 1,289 seasoned, performing loans, which total $243.4 million.

For Group 1, the AAAsf rating on class 1-A1 notes reflects the 49.55% subordination provided by the 6.05% class 1-A2, 5.00% class 1-M1, 5.00% class 1-M2, 7.15% class 1-B1, 5.10% class 1-B2, 10.00% class 1-B3 and 10.50% class 1-B4 notes.

For Group 2, the AAAsf rating on class 2-A1 notes reflects the 31.65% subordination provided by the 6.65% class 2-A2, 4.85% class 2-M1, 4.45% class 2-M2, 3.95% class 2-B1, 3.00% class 2-B2, 3.75% class 2-B3 and 5.00% class 2-B4 notes.

Fitch's ratings on the class A notes reflect the credit attributes of the underlying collateral, the quality of the servicers, Select Portfolio Servicing, Inc. (rated 'RPS1-' by Fitch), Specialized Loan Servicing LLC (rated 'RPS2' by Fitch), Carrington Mortgage Services, LLC (rated 'RPS3' by Fitch) and Wells Fargo Bank (rated 'RPS1-' by Fitch) and the representation (rep) and warranty framework, minimal due diligence findings and the sequential pay structure.

KEY RATING DRIVERS

Performance History Varies by Group: The group 1 pool consists primarily of peak-vintage re-performing loans (RPLs), of which 99.5% have been modified and 81% have been current on their payment for the past 24 months or were missing a full 24 month pay history and were therefore assumed to have a prior delinquency. The remaining 19% have had delinquencies in the past 24 months.

Group 2 consists of peak-vintage seasoned performing loans, of which none have been modified and 97% have been current on their payments for the past 24 months. Roughly 3% have had delinquencies in the past 24 months or were missing a full 24 month pay history. All of loans in both pools are current.

Risk Attributes Markedly Different: Group 1 has more risky credit and loan attributes than group 2. Group 1 has a weighted average (WA) current loan to value (LTV) ratio of 109% and a sustainable LTV (sLTV) 116% indicating a significant negative equity position of the underlying borrowers. The WA FICO is 677.

In contrast, Group 2's loan attributes reflect a relatively low risk profile, with a WA current LTV of 85%, sLTV of 90%, and a WA FICO of 727. Both pools are geographically well diversified with the highest concentration in Group 1 totaling 12% in the Washington DC/Arlington MSA and group 2's totaling 9% in Chicago.

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 re-paid 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 for both groups prior to other principal distributions is highly supportive of timely interest payments to those classes in the absence of servicer advancing.

No Servicer P&I Advances: The servicer will not be advancing delinquent monthly payments of principal and interest (P&I). Because 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.

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 up to 'Asf' on notes that incur deferrals if such deferrals are permitted under the 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.

Tier 2 Representation Framework: Fitch generally considers the representation, warranty, and enforcement mechanism (RW&E) 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 3.2% for group 1 and 2.0% for group 2 to account for a potential increase in defaults and losses arising from weaknesses in the reps.

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 June 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 June 2016.

Minimal Due Diligence Findings: Due diligence was generally conducted on 100% of the pool covering regulatory compliance, pay history, the presence of key documents in the loan file and data integrity. A servicing comment review was completed on 83% of the loans, however, given that all loans have been current for the past 12 months and were confirmed by the servicers to be as such, Fitch determined this to be a mitigating factor and that no additional adjustments were needed. Overall, the results of the third-party reviews generally reflected limited findings.

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. Of the 4,410 loans comprising the two groups combined, 2,202 loans are not currently recorded in the appropriate jurisdiction. The latest estimated recordation date for these loans is Dec. 31, 2015, the majority of the loans should be recorded by June 30, 2015.

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 June 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 - i.e. loans with clean payment histories for the past 24 months - found that its loan loss model projected probability of defaults (PDs) for those loans were more punitive than those indicated by Fitch's roll rate projections. To account for this, Fitch reduced the lifetime default expectations for the 81% clean current loans in the group 1 and 97% clean current loans in group 2 by approximately 19%.

Deferred Amounts: Non-interest bearing principal forbearance amounts totaling $35 million (4.9% of the group 1 pool balance as of the cut-off date) are outstanding on 852 loans in group 1. 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. No loans in group 2 have deferred amounts.

Third-Party Loan Sale Provisions: The transaction permits non-performing 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 sales price is floored at a minimum value equal to 62.00% of the group 1 loans' unpaid principal balance and 61.20% of the group 2 loan's unpaid principal balance, which approximates Fitch's 'Bsf' LS expectations.

RATING SENSITIVITIES

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 5.8% (group 1) and 5.0% (group 2). 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 from American Mortgage Consultants JCIII & Associates Opus Capital Markets Consultants, LLC and Clayton Holdings LLC. 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 Stewart Lender Services 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 83% of the loans; however, given that all loans have been current for the past 12 months and were confirmed by the servicers to be as such, Fitch determined this to be a mitigating factor and that no additional adjustments were needed to account for this.

Fitch considered this information in its analysis and based on the findings, Fitch made minor adjustments to its analysis. Fitch assumed a further three-month extension of liquidation timelines on top of those currently applied to re-performing loans, for roughly 760 loans in group 1, for which the due diligence review found that modification documents were missing from the collateral loan file. The timeline extension was added to account for potential delays related to not having a signed and executed modification agreement.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158

Criteria for Rating Caps and Limitations in Global Structured Finance Transactions (pub. 28 May 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748781

Global Structured Finance Rating Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=864268

U.S. RMBS Cash Flow Analysis Criteria (pub. 06 Apr 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863973

U.S. RMBS Loan Loss Model Criteria (pub. 17 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=810788

U.S. RMBS Master Rating Criteria (pub. 01 Jul 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750719

U.S. RMBS Qualified and Non-Qualified Mortgage Criteria (pub. 31 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863837

U.S. RMBS Surveillance and Re-REMIC Criteria (pub. 24 Jun 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750110

US RMBS Re-Performing Loan Criteria (pub. 21 Nov 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=811488

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985609

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150529006046/en/

Fitch Ratings
Primary Analyst
Rachel Noonan
Director
+1-212-908-0224
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Suzanne Mistretta
Senior Director
+1-212-908-0639
or
Committee Chairperson
Grant Bailey
Managing Director
+1-212-908-0544
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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