Two Harbors’ first jumbo residential mortgage-backed securities deal using its own depositor is in the works, according to a Fitch presale report issued Tuesday.
Fitch expects to assign its top investment grade rating to two classes of the more than $400 million transaction, Agate Bay Mortgage Trust 2013-1. It assigned lower investment grade ratings of AAsf, Asf and BBBsf on three other classes. It also said it expects to assign a high-end speculative grade rating of BBsf to a sixth class and noted that there will be two other classes of certificates it will not rate.
An affiliate of the real estate investment trust expects to be a subordinate investor in the transaction “and, thus have a direct economic interest in the performance,” according to Fitch. This is something the main participant in the market, Redwood/Sequoia, has done but other players have not. It is considered a positive within the context of the deal.
Like many jumbo deals, the transaction has what Fitch describes as a “high-quality mortgage pool” behind it somewhat counterbalanced by a relatively high California concentration, particularly in the northern part of the state. The pool has a weighted average Fair Isaac & Co. credit score of 770 and weighted average household income and liquid reserve requirements of $350,747 and $325,789, respectively.
Fitch also noted “moderate due diligence findings” by third-party provider Clayton Holdings LLC.
“While the review resulted in minimal credit and compliance findings, it identified 19% of the pool in Federal Emergency Management Agency designated disaster areas as part of its property valuation review,” the ratings agency said in its presale report.
Unlike some other players’ transactions aside from fellow REIT Redwood/Sequoia’s, the Two Harbors deal has a “robust
Like many deals, this one also has “originators with limited performance history” contributing to a large portion of the pool but the risk is considered mitigated by credit enhancement in the transaction.
Fitch notes that Two Harbors itself has a “limited operating history” having formed in 2009. “The current form of Two Harbor's conduit initiative is relatively new,” the ratings agency said. But it noted that it “did not identify material weaknesses in its discussions with the company.”
