DBRS Rates Arch Bay Asset-Backed Securities Trust 2010-1

DBRS has today assigned the following ratings to the Mortgage-Backed Notes, Series 2010-1 issued by Arch Bay Asset-Backed Securities Trust 2010-1 (the Trust).

-- $57.4 million Class A rated at AAA

The AAA ratings in this transaction reflect the 75.00% of credit enhancement provided by subordination, overcollateralization and monthly excess spread. DBRS does not rate any other securities in this transaction.

The ratings on the notes also reflect the quality of the underlying assets and the capabilities of Specialized Loan Servicing LLC (SLS) as servicer. Wells Fargo Bank, N.A. will serve as indenture trustee and custodian. Arch Bay Asset Management, LLC – Series 1 will serve as the Trust’s asset manager.

Interest and principal payments collected from the mortgage loans will generally be distributed on the 25th of each month, commencing in February 2010. Interest and then principal will be paid on a sequential basis first to the Class A notes and then to the Class M notes until the principal balance has been reduced to zero.

The Trust contains seasoned mortgage loans originated by Accredited Home Lenders, Inc. (27%), NovaStar Mortgage, Inc. (11%), National City Mortgage (6%) and various other originators. The loans are on average 32 months seasoned first-lien, fixed and adjustable rate subprime mortgages secured by one- to four-family residential properties. As of the cut-off date (January 1, 2010), the loans had an aggregate principal balance of approximately $ 229,685,913, a weighted-average (W.A.) mortgage rate of 7.31% and a W.A. updated FICO score of 627.

As of the cut-off date, 21% of the mortgage loans were 30-days delinquent and 89% were current under the MBA method. 19% of the pool has been modified. In its analysis, DBRS reviewed all modified loans in conjunction with modification dates and pay histories. To the extent that a modified loan has not demonstrated a consistently improved payment pattern for a minimum of one year, DBRS reverted its status back to delinquent when assessing the default frequencies. For example, a loan that was modified five months ago and was 60 days delinquent before modification will be treated as 60 days delinquent in determining default frequencies. In addition, depending on the severity of the pay histories, DBRS would apply the same methodology to non-modified loans with a derogatory pay history (that was subsequently cured) on a case-by-case basis.

The W.A. combined loan-to-value (CLTV) ratio at origination was 83.9%. DBRS calculated the current CLTV as 135.3%. In doing so, DBRS first updated properties to their present value based on the updated broker price opinion (BPO) value and updated BPO date using the Metropolitan Statistical Area (MSA) Case-Shiller home price indices. Then, DBRS further stressed the appraised values to the MSA-level housing trough based on the Case-Shiller home price projections for the next 12 months.

In this transaction, SLS will not advance any principal and interest payments on delinquent mortgages to the securitization trust. This will likely result in lower loss severities to the bond holders because the advanced interest will not have to be reimbursed from the trust upon the liquidation of the mortgages. When performing cash flow analysis, DBRS approximated a delinquency curve by front-loading our standard loss timing vectors by an average of 18 months. Any principal and interest collections were shut off as soon as loans become delinquent, until they are liquidated. Given the amount of anticipated loan modifications, DBRS also ran various cash flow stresses assuming the collateral WAC may be reduced (“WAC deterioration”).

In addition, DBRS conducted a servicer review of Specialized Loan Servicing LLC. Various firms including the Opus Capital Markets and Allonhill performed a credit and compliance due diligence on 100% of the mortgage loans.

Note:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating U.S. Residential Mortgage-Backed Securities Transactions, which can be found on our website under Methodologies.

This is a Structured Finance rating.