Fitch Rates FHASI $251.6MM Mortgage P-T Certificates Series 2004-AR5

Business Wire, August 31, 2004

NEW YORK -- Fitch rates First Horizon Asset Securities Inc. (FHASI) mortgage pass-through certificates, series 2004-AR5 as follows:

-- Classes I-A-1, II-A-1, III-A-1, IV-A-1, and II-A-R, ($430,823,100) 'AAA';

-- Classes B-1 ($3,783,000) 'AA';

-- Class B-2 ($1,891,000) 'A';

-- Class B-3 ($883,000) 'BBB';

-- Class B-4 ($757,000) 'BB';

-- Class B-5 ($504,000) 'B'.

The class B-6 certificates are not rated by Fitch.

The 'AAA' rating on the senior certificates reflects the 3.35% subordination provided by the 1.50% class B-1, the 0.75% class B-2, the 0.35% class B-3, the 0.30% privately offered class B-4, the 0.20% privately offered class B-5, and the 0.25% privately offered class B-6 certificates. The ratings on the class B-1, B-2, B-3, B-4, and B-5 certificates are based on their respective subordination. Fitch believes the above credit enhancement will be adequate to support mortgagor defaults, as well as bankruptcy, fraud, and special hazard losses in limited amounts. In addition, the ratings reflect the quality of the mortgage collateral, strength of the legal and financial structures, and the servicing capabilities of First Horizon Home Loan Corporation, currently rated 'RPS2' by Fitch.

The certificates represent ownership interests in a trust fund that consists of four cross-collateralized pools of mortgages. The senior certificates whose class designation begins with I, II, III, and IV correspond to pools I, II, III, and IV, respectively. Each of the senior certificates generally receives distributions based on principal and interest collected from mortgage loans in its corresponding mortgage pool. If on any distribution date a pool is undercollaterized and borrower payments from the underlying loans are insufficient to pay senior certificate principal and interest, borrower payments from the other pools that would have been distributed to the subordinate certificates will instead be distributed as principal and interest to the undercollaterized group's senior certificates. The subordinate certificates will only receive principal and/or interest distributions after all the senior certificates receive all their required principal and interest distributions.

Pool I consists of 3/1 hybrid adjustable-rate mortgages (ARMs). The loans have an initial fixed interest rate period of three years. Thereafter, the interest rate will adjust annually based on the weekly average yield on U.S. Treasury securities (one-year CMT) plus a gross margin. Approximately 63.39% of the mortgage loans in pool I have interest-only payments scheduled during the three-year fixed-rate period, with principal and interest payments commencing after the first rate adjustment date. The aggregate principal balance of this pool is $46,002,331 and consists of conventional, fully amortizing, ARM loans secured by first liens on single-family residential properties, substantially all of which have original terms to maturity of 30 years. The average principal balance of the loans in this pool is approximately $500,025. The mortgage pool has a weighted average original loan-to-value ratio (OLTV) of 75.00%. Rate/term and cash-out refinance loans account for 10.92% and 8.59% of the pool, respectively. Second homes and investor occupancies represent 1.88% and 0.92% of the pool, respectively. The states with the largest concentrations are California (36.76%), Washington (10.26%), Virginia (9.00%), Massachusetts (8.90%), and Maryland (5.97%). All other states represent less than 5% of the pool as of the cut-off date.

Pool II consists of 5/1 hybrid ARMs. The loans have an initial fixed interest rate period of five years. Thereafter, the interest rate will adjust annually based on the weekly average yield on U.S. Treasury securities (one-year CMT) plus a gross margin. Approximately 55.77% of the mortgage loans in pool II have interest-only payments scheduled during the five-year fixed-rate period, with principal and interest payments commencing after the first rate adjustment date. The aggregate principal balance of this pool is $133,117,045 and consists of conventional, fully amortizing, ARM loans secured by first liens on single-family residential properties, substantially all of which have original terms to maturity of 30 years. The average principal balance of the loans in this pool is approximately $511,989. The mortgage pool has a weighted average OLTV of 73.67%. Rate/term and cash-out refinance loans account for 10.18% and 5.75% of the pool, respectively. Second homes represent 4.61% of the pool; there are no investor occupancies. The states with the largest concentration are California (37.04%), Virginia (9.50%), Washington (8.46%), and Maryland (5.59%). All other states represent less than 5% of the pool as of the cut-off date.

Pool III consists of 7/1 hybrid ARMs. The loans have an initial fixed interest rate period of seven years. Thereafter, the interest rate will adjust annually based on the weekly average yield on U.S. Treasury securities (one-year CMT) plus a gross margin. Approximately 52.92% of the mortgage loans in pool III have interest-only payments scheduled during the seven-year fixed-rate period, with principal and interest payments commencing after the first rate adjustment date. The aggregate principal balance of this pool is $35,001,658 and consists of conventional, fully amortizing, ARM loans secured by first liens on single-family residential properties, substantially all of which have original terms to maturity of 30 years. The average principal balance of the loans in this pool is approximately $564,543. The mortgage pool has a weighted average OLTV of 68.59%. Rate/term and cash-out refinance loans account for 14.04% and 2.67% of the pool, respectively. Second homes represent 3.02% of the pool; there are no investor occupancies. The states with the largest concentrations are California (30.87%), Virginia (17.36%), Arizona (7.32%), Washington (6.02%), North Carolina (5.95%), and Texas (5.01%). All other states represent less than 5% of the pool as of the cut-off date.