KEY RATING DRIVERS
Ability to Repay (ATR) and Qualified Mortgage (QM): Of the total pool, 384 loans on primary or secondary residences have application dates of
There were four additional loans made on investment properties with application dates on or after
Due Diligence Exception: Roughly 23% of FRB-originated loans in the initial population of loans considered for this securitization were reviewed by the third-party due diligence provider
Fitch considers this to be a nonsubstantive deviation, given the agency's view of FRB as an above-average originator, the strong historical performance of FRB's originations and the lack of material findings on the FRB loans reviewed.
Market Value Decline Sensitivity: Fitch's sustainable home price model suggests house prices for the pool are overvalued by roughly 17.4%, which results in an 'Asf' sustainable market value decline (sMVD) stress above the recent national housing recession's peak-to-trough experience. A sensitivity analysis was factored into Fitch's analysis to better align its sMVD stress to recent observations, which resulted in applying a base sMVD of 15.2%.
Aggregator Quality: Based on Fitch's aggregator review of
Cash Flow Structure: The transaction features a traditional senior subordinate shifting interest structure. Furthermore, the trust provides for expenses, including indemnification amounts and costs of arbitration, to be paid by the net weighted average coupon (WAC) of the loans, which does not impact the contractual interest due on the certificates.
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 15.2% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch's stress and rating sensitivity analysis are discussed in its presale report released today 'Sequoia Mortgage Trust 2014-2', available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
In addition to the information sources identified in Fitch's criteria listed below, Fitch's analysis incorporated data tapes, due diligence results, deal structure and legal documents from the 17g5 website available on 'www.structuredfn.com'.
--'Global Structured Finance Rating Criteria' (
--'Counterparty Criteria for Structured Finance and Covered Bonds' (
--'U.S. RMBS Master Rating Criteria' (
--'U.S. RMBS Loan Loss Model Criteria' (
--'U.S. RMBS Cash Flow Analysis Criteria' (
--'Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers' (
--'U.S. RMBS Surveillance and re-REMIC Criteria' (
--'U.S. RMBS Qualified and Non-Qualified Mortgage Criteria' (
Global Structured Finance Rating Criteria
Counterparty Criteria for Structured Finance and Covered Bonds
U.S. RMBS Master Rating Criteria
U.S. RMBS Loan Loss Model Criteria
U.S. RMBS Cash Flow Analysis Criteria
U.S. RMBS Qualified and Non-Qualified Mortgage Criteria
Rating Criteria for US Residential and Small Balance Commercial Mortgage Servicers
U.S. RMBS Surveillance and Re-REMIC Criteria
Source: Fitch Ratings
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