Fitch Expects to Rate Agate Bay Mortgage Trust 2015-1; Presale Issued

Fitch Ratings expects to rate Agate Bay Mortgage Trust 2015-1 as follows:

--$208,721,000 class A-1 certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-2 certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-3 exchangeable certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-4 exchangeable certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-5 exchangeable certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-6 exchangeable certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-7 exchangeable certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-8 exchangeable certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-9 exchangeable certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-10 exchangeable certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-11 exchangeable certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-12 exchangeable certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-13 exchangeable certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-14 exchangeable certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-15 exchangeable certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-1 notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-2 notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-3 notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-4 notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-5 notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-6 notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-7 notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-8 notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-9 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-10 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$208,721,000 class A-X-11 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-12 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-13 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$52,180,000 class A-X-14 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-X-15 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-X-16 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$260,901,000 class A-X-17 exchangeable notional certificates 'AAAsf'; Outlook Stable;

--$6,428,000 class B-1 certificates 'AAsf'; Outlook Stable;

--$3,633,000 class B-2 certificates 'Asf'; Outlook Stable;

--$3,214,000 class B-3 certificates 'BBBsf'; Outlook Stable;

--$2,795,000 class B-4 certificates 'BBsf'; Outlook Stable.

The $2,516,082 class B-5 certificates and $279,487,082 class A-IO-S notional certificates will not be rated.

KEY RATING DRIVERS

High High-Quality Mortgage Pool: The collateral pool consists of very high high-quality 30-year, fixed-rate, fully amortizing loans to borrowers with strong credit profiles, low leverage, and liquid reserves. The pool has a weighted average FICO score of 774 and an original combined loan-to-value of 67%. While the average amount of liquid reserves is lower for this pool relative to other recent transactions with comparable profiles, over 25% of the borrowers have reserves in excess of 30% of their mortgage amount.

Originators with Limited Performance History: Many of the loans were originated by lenders with limited non-agency performance history. However, all of the loans were originated to meet TH TRS Corp.'s (TH TRS), a wholly owned subsidiary of Two Harbors Investment Corp., purchase criteria and were reviewed by a third-party due diligence firm to TH TRS' purchase criteria with no material findings. In addition, Fitch conducted an in-depth call with the top two originators, which account for approximately 30% of the pool.

Geographic Concentration Risk: The pools' primary concentration risk is California, where 44.1% of the properties are located. In addition, the metropolitan areas encompassing San Francisco, Los Angeles, and San Jose combine for 33.3% of the collateral balance and represent three of the top 10 regions. The regional concentration resulted in an additional penalty of roughly 10% to the pool's lifetime default expectation.

Robust Representation Framework: Fitch considers the transaction's representation, warranty and enforcement mechanism (RW&E) framework to be consistent with a Tier 1 quality. The transaction benefits from life of loan representation and warranty (R&W), as well as a backstop by the seller, TH TRS, in case of insolvency or dissolution of the related originator. Similar to recent transactions rated by Fitch, ABMT 2015-1 contains binding arbitration provisions that may serve to provide timely resolution to R&W disputes.

Safe-Harbor Qualified Mortgages: Of the total pool, 399 loans (approximately 98.1% of the pool) have application dates of Jan. 10, 2014 or later and are, therefore, subject to the ability-to-repay (ATR)/qualified mortgage (QM) Rule. All of the loans subject to this rule were classified as safe harbor QM (SHQM), for which no adjustment was made. The remainder of the loans was not subject to the ATR/QM Rule as their application dates were prior to Jan. 10, 2014.

Extraordinary Expense Treatment: 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. Furthermore, the expenses to be paid from the trust are capped at $300,000 per annum ($125,000 for the trustee), which can be carried over each year, subject to the cap until paid in full.

RATING SENSITIVITIES

After Fitch determines credit ratings through a rating stress scenario analysis, additional sensitivity analyses are considered. The analyses provide a defined stress sensitivity to demonstrate how the ratings would react to steeper MVDs than that assumed at issuance as well as a defined sensitivity that demonstrates the stress assumptions required to reduce a rating by one full category, to non-investment grade, and to 'CCCsf'.

The defined stress sensitivity analysis focuses on 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 6.2% for this pool. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.

Fitch also conducted defined rating sensitivities, analyses which determine the stresses to MVDs that would reduce a rating by one full category, to non-investment grade, and to 'CCCsf'. For example, additional MVDs of 6%, 30% and 49% could potentially reduce lower the 'AAAsf' rated class down one rating category, to non-investment grade, and to 'CCCsf', respectively.

Fitch's stress and rating sensitivity analysis are discussed in the presale report titled 'Agate Bay Mortgage Trust 2015-1', dated January 2015, which is available on Fitch's web site, www.fitchratings.com, or by clicking on the link.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research

--Global Structured Finance Rating Criteria (August 2014);

--Counterparty Criteria for Structured Finance and Covered Bonds (May 2014);

--U.S. RMBS Master Rating Criteria (July 2014);

--U.S. RMBS Loan Loss Model Criteria (November 2014);

--U.S. RMBS Cash Flow Analysis Criteria (April 2014);

--Rating Criteria for U.S. Residential and Small Balance Commercial Mortgage Servicers (January 2014);

--U.S. RMBS Surveillance and Re-REMIC Criteria (June 2014).

Applicable Criteria and Related Research: Agate Bay Mortgage Trust 2015-1 (US RMBS)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=851668

Counterparty Criteria for Structured Finance and Covered Bonds

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

U.S. RMBS Surveillance and Re-REMIC Criteria

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

U.S. RMBS Cash Flow Analysis Criteria -- Effective April 19, 2013 to April 16, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=705655

U.S. RMBS Loan Loss Model Criteria

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

U.S. RMBS Master Rating Criteria

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

U.S. Residential and Small Balance Commercial Mortgage Servicer Rating Criteria -- Effective January 31, 2011 to January 30, 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=600065

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=969135

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