First RMBS of 2016, from Two Harbors, Is Plain Vanilla

Two Harbors is marketing its first residential mortgage securitization of the year, according to Fitch Ratings.

Agate Bay Mortgage Trust 2016-1 (ABMT 2016-1) is backed by 419 prime, fixed-rate 30-year loans with a total balance of $304.8 million as of the cutoff date.

All of these loans are fully amortizing and are made to borrowers with strong credit profiles, low leverage and liquid reserves, according to Fitch. The pool has a weighted average FICO score of 772 and an original combined loan-to-value ratio of 67.5%.

As with most private-label RMBS, the pool's primary concentration risk is California, where 49.5% of the properties are located. In addition, the metropolitan areas encompassing San Francisco, Los Angeles, San Jose and San Diego combine for 40% of the collateral balance and represent four of the top 10 regions. While this is a slight improvement over prior Agate Bay transactions, the regional concentration prompted Fitch to make an additional penalty to the pool's lifetime probability of default of roughly 3%.

All the loans are subject to the ability-to-repay rule and qualify for a legal safe harbor.

The top three contributing originators, Parkside Lending, NYCB Mortgage Co. and Commerce Home Mortgage Inc., account for 34% of the outstanding balance. All loans will be serviced by Cenlar FSB. Wells Fargo Bank will act as master servicer for the transaction.

Fitch assigned a preliminary AAA rating to the senior tranches of notes to be issued by the trust; these notes benefit from 6.7% subordination, which is lower than the 6.9% subordination for the comparable tranches of Two Harbors' previous RMBS.

Wells Fargo Securities is the underwriter.

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