Fitch Assigns Final Ratings to Firstmac Mortgage Funding Trust No.4 Series 2-2016

(The following statement was released by the rating agency)Link to Fitch Ratings' Report: Firstmac Mortgage Funding Trust No.4 Series 2-2016https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882279SYDNEY, May 26 (Fitch) Fitch Ratings has assigned final ratings to Firstmac Mortgage Funding Trust No.4 Series 2-2016's mortgage-backed pass-through and scheduled amortisation floating-rate notes. The issuance consists of notes backed by Australian prime residential mortgages originated by Firstmac nominee originators. The ratings are as follows:AUD405.0m Class A-1a notes: 'AAAsf'; Outlook StableAUD20.0m Class A-1b notes: 'AAAsf'; Outlook StableAUD35.0m Class A-2 notes: 'AAAsf'; Outlook StableAUD26.0m Class B notes: 'NRsf'AUD6.5m Class C notes: 'NRsf'AUD5.5m Class D notes: 'NRsf'AUD2.0m Class E notes: 'NRsf'The notes have been issued by Firstmac Fiduciary Services Pty Ltd in its capacity as trustee of Firstmac Mortgage Funding Trust No. 4 Series 2-2016.At the cut-off date, 17 February 2016, the total collateral pool consisted of 1,710 loans to 1,385 borrowers, totalling approximately AUD500m.KEY RATING DRIVERS Sufficient Subordination: The class A-1(a and b) and A-2 notes benefit from credit enhancement of 15.0% and 8.0% respectively, provided by the subordinate notes, which is sufficient to support ratings independent of credit provided by Lenders Mortgage Insurance (LMI).Conservative Pool Characteristics: The weighted average (WA) seasoning of the portfolio is 11 months, with a current weighted average loan-to-value ratio (LVR) of 67.2% and WA Indexed LVR of 66.7%. The average obligor current loan size is AUD360,954. Investment loans represent 36.1% of the pool by balance, with interest-only loans at 43.8%. LMI is present on 16.2% of the poolSequential/Pro-Rata Paydown: Classes A-1 and A-2 will initially receive principal in set proportions, with classes B, C, D and E notes receiving principal sequentially, prior to the Pro-Rata Test conditions being met. Once pro-rata tests have been met, principal will be allocated on a pro-rata basis across all notes, except class E. The class E notes will receive no principal allocation until all other notes have been fully repaid. Excess Spread Trap: The transaction benefits from a spread reserve account funded by excess income that is available to cover both liquidity shortfalls and losses. Prior to the call date, the spread reserve account traps excess spread up to a maximum of AUD2.0m if certain conditions are met. RATING SENSITIVITIES Unexpected decreases in residential property values, increases in the frequency of foreclosures and loss severity on defaulted mortgages could produce loss-levels higher than Fitch's base-case, which could in turn result in negative rating action on the notes. Fitch has evaluated the sensitivity of the ratings to increased defaults and decreased recovery rates over the life of the transaction.The analysis found the class A-1a and A-1b notes' ratings remained stable under each of Fitch's medium and severe individual default and recovery scenarios (15% and 30% increase in defaults or decrease in recoveries, respectively), while the rating of the class A-2 notes remained stable only under Fitch's medium stress (15% increase in defaults or decrease in recoveries) and is susceptible to a rating downgrade under more severe stress (30% increase in defaults or decrease in recoveries). In a combined stress scenario (both 15% increase in defaults and 15% decrease in recoveries) ratings remained stable for the class A-1a and A-1b notes, while the class A-2 notes are susceptible to downgrade. Under a more severe multiple stress scenario (both 30% increase in defaults and 30% decrease in recoveries), the rating of class A-1a, A-1b and A-2 notes lowered by two notches to 'AAsf'. The transaction structure supports an LMI-independent rating for the class A-1a, A-1b and A-2 notes; therefore LMI is not required to support the ratings due to the level of credit support provided by the lower notes.DUE DILIGENCE USAGE No third party due diligence was provided or reviewed in relation to this rating action.DATA ADEQUACYFitch conducted a file review sampling 10 loan files focusing on the underwriting procedures conducted by Firstmac compared to its credit policy at the time of underwriting. Fitch has checked the consistency and plausibility of the information and no material discrepancies were noted that would impact Fitch's rating analysis.Key Rating Drivers and Rating Sensitivities are further discussed in the corresponding new issue report entitled, "Firstmac Mortgage Funding Trust No.4 Series 2-2016", published today. Included as an appendix to the report are a description of the representations, warranties and enforcement mechanisms.Contacts: Primary Analyst Spencer WilsonAssociate Director +612 8256 0320 Fitch Australia Pty Ltd., Level 15, 77 King St, Sydney, NSW 2000Secondary Analyst David CarrollDirector +612 8256 0333 Committee Chairperson Natasha VojvodicSenior Director+612 8256 0350 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available at www.fitchratings.comThe source of information identified for this rating action was informed by information from Firstmac, Westpac Banking Corporation and the issuer's counsel, King & Wood Mallesons. The issuer has informed Fitch that not all relevant underlying information used in the analysis of the rated notes is public.Applicable Criteria APAC Residential Mortgage Criteria (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867437Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744158Counterparty Criteria for Structured Finance and Covered Bonds: Derivative Addendum (pub. 14 May 2014)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=744175Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds (pub. 14 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878412Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds - Derivative Addendum (pub. 14 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=878499Global Criteria for Lenders’ Mortgage Insurance in RMBS (pub. 23 Jun 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865195Global Structured Finance Rating Criteria (pub. 06 Jul 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=867952Related Research Firstmac Mortgage Funding Trust No.4 Series 2-2016 Appendixhttps://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=882280Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1005132Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005132Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S FREE WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Australia Pty Ltd holds an Australian financial services licence (AFS licence no. 337123) which authorises it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.