Fitch Rates EverBank Mortgage Loan Trust 2013-2
Fitch Rates EverBank Mortgage Loan Trust 2013-2
Fitch Ratings assigns the following ratings to EverBank Mortgage Loan Trust 2013-2 (EBMLT 2013-2):
--$279,031,000 class A certificate 'AAAsf'; Outlook Stable;
--$279,031,000 class A-IO notional certificate 'AAAsf'; Outlook Stable;
--$7,127,000 class B-1 certificate 'AAsf'; Outlook Stable;
--$5,460,000 class B-2 certificate 'Asf'; Outlook Stable;
--$4,398,000 class B-3 certificate 'BBBsf'; Outlook Stable;
--$3,336,000 class B-4 certificate 'BBsf'; Outlook Stable;
--$3,943,159 class B-5 certificate not rated.
The 'AAAsf' rating on the senior certificates reflects the 8.00% subordination provided by the 2.35% class B-1, 1.80% class B-2, 1.45% class B-3, 1.10% class B-4 and 1.30% class B-5. The class B-5 is not rated by Fitch.
KEY RATING DRIVERS
Low CLTVs and High FICO Scores: The pool's original weighted average (WA) combined loan-to-value ratio (CLTV) is 67.86%, indicating substantial equity in the property. Taken together with the high WA original Fair Isaac Corp. (FICO) score of 776, the pool is of very high credit quality and has considerably low default risk. EBMLT 2013-2 has an improved FICO distribution compared to EBMLT 2013-1, with just 2.3% of borrowers with FICOs below 720 vs. 5.4% previously.
15-Year FRMs: The pool consists of 15-year (13.1%) and 30-year (86.9%) FRMs. Borrowers of 15-year mortgages are positively selected, as they have the option to select a lower payment option with a 30-year FRM but qualify at, and choose, a higher payment. Thus, the default risk is significantly lower, compared with borrowers of other products, all else being equal. However, the larger monthly payments associated with the 15-year FRM result in a faster paydown on the subordinate classes during the lock-out period. As a result, more transaction-level subordination is needed to cover losses, should they occur later in the transaction's life.
Locations with High sMVDs: Roughly one-third of the pool is located in regions that Fitch believes to be overvalued by 18%-33% above sustainable levels, including Los Angeles, San Jose, and Santa Ana, CA. The high market value decline projections are key contributors to Fitch's default and loss risk assessment of this pool. In addition, the pool has significant regional concentrations that resulted in an additional penalty of about 7% to the pool's lifetime default expectation. This reflects a slight improvement from EBMLT 2013-1, in which the pool's default risk was increased by 10% to account for the geographic concentration.
R&W Counterparty Net Negative: The mortgage loan representation and warranty (R&W) framework is consistent with Fitch's criteria and viewed positively by the agency. However, EverBank does not meet the criteria financial condition threshold. As a result, Fitch made an adjustment to its loss expectations to account for the possibility of slightly higher defaults and losses arising from EverBank's inability to repurchase loans due to breaches. The adjustment considered the 100% due diligence review, as well as the very high quality of the mortgage loans.
Fitch's analysis incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines than assumed at the MSA level. 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. Three sets of sensitivity analyses were conducted to assess the effect of higher market value declines for the subject pool.
In its analysis, Fitch considered placing a greater emphasis on recent economic performance in determining market value declines for the pool. While Fitch's current loan loss model looks to three years of historical data and one year of projections, this does not incorporate recent notable economic improvement. To reflect the more recent economic environment, a sensitivity analysis was performed using two years of historical economic data and two years of projections. The result of this sensitivity analysis was included in the consideration of the loss expectations for this transaction. The sensitivity analysis resulted in a base sMVD decline of 15.4% from 16.3%.
Roughly half of the pool is located in California, both in areas with high and low market value decline projections. The market value decline projections are key contributors to Fitch's default and loss risk assessment of this pool. Fitch conducted sensitivity analysis assuming sMVDs of 15%, 20%, and 25% for all the California regions. The sensitivity analysis indicated no impact on ratings for all bonds in each scenario.
The third sensitivity analysis demonstrates how the ratings would react to steeper market value declines at the national level. The analysis assumes market value declines of 10%, 20%, and 30%, in addition to the model projected 16.3% for this pool. The analysis indicates there will be no rating impact with a further 10% market value decline from the current model projection. However, there is some potential rating migration with higher MVDs, compared with the model projection.
Key Rating Drivers and Rating Sensitivities are further described in the accompanying pre-sale report 'EverBank Mortgage Loan Trust 2013-2', available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research
--'Global Structured Finance Rating Criteria' (May 24, 2013);
--'U.S. RMBS Loan Loss Model Criteria' (Aug. 10, 2012);
--'U.S. RMBS Rating Criteria' (July 10, 2012);
--'U.S. RMBS Representations and Warranties Criteria' (June 29, 2012).
Applicable Criteria and Related Research:
U.S. RMBS Rating Criteria
U.S. RMBS Representations and Warranties Criteria
U.S. RMBS Loan Loss Model Criteria
Global Structured Finance Rating Criteria
Fitch Ratings, Inc.
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