DBRS Assigns Provisional Ratings to Shellpoint Asset Funding Trust 2013-2 Mortgage Pass-Through Certificates, Series 2013-2

DBRS, Inc. (DBRS) has assigned the following provisional ratings to the Mortgage Pass-Through Certificates, Series 2013-2 issued by Shellpoint Asset Funding Trust 2013-2 (the Trust).

-- $ 284.3 million Class A rated at AAA (sf)
-- $ 284.3 million Class A-IO* rated at AAA (sf)

• Denotes interest only class; the class balance represents a notional amount.

The AAA (sf) ratings on the Certificates reflect 7.90% of credit enhancement provided by subordination. Other than the specified classes above, DBRS does not rate any other classes in this transaction.

The Certificates are backed by 431 loans with a total principal balance of $308,637,045 as of the Cut-off Date. The mortgage loans were originated or acquired from originators through its flow correspondent program by New Penn Financial, LLC (“New Penn”), a wholly owned subsidiary of Shellpoint Partners LLC (“Shellpoint”). The loans will be serviced by Selene Finance LP (“Selene”). For this transaction, Wells Fargo Bank, N.A. (“Wells Fargo”) will act as the Master Servicer and Securities Administrator and New Penn will be the Servicing Administrator.

The ratings on the Certificates reflect transactional strengths that include high quality underlying assets, particularly with respect to the mortgage loans originated in the Advantage Program, well qualified borrowers and satisfactory third-party due diligence review. Compared to the SAFT 2013-1 transaction, the SAFT 2013-2 pool consists of a larger percentage of Advantage loans and exhibits higher quality prime characteristics.

The ratings on the Certificates also reflect challenges such as limited operating and performance history and weak financial strength of the originator and issuer, relatively uneven distribution of certain loan characteristics and the higher percentage of foreign national borrowers and geographic concentration as compared to other recent prime jumbo transactions. DBRS addresses these challenges and provides certain mitigating factors in its pre-sale report.

With respect to the representations and warranties framework, although the transaction employs a strong standard which includes automatic review of seriously delinquent loans and loans that incur any loss upon liquidation, mandatory arbitration and no sunset provisions, the limited operating history and the weak financial strength of the originator and issuer still demand additional penalties and credit enhancement protections. To capture the perceived weaknesses, DBRS adjusted downward the origination score of New Penn to account for its potential inability to fulfill repurchase obligations. Such adjustment resulted in increases in default and loss assumptions for the transaction.

The full description of the strengths, challenges and mitigating factors are detailed in the related pre-sale report.

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

The applicable methodologies are:
• RMBS Insight: U.S. Residential Mortgage-Backed Securities Loss Model and Rating Methodology
• Unified Interest Rate Model for U.S. RMBS Transactions
• Third-Party Due Diligence Criteria for U.S. RMBS Transactions
• Representations and Warranties Criteria for U.S. RMBS Transactions
• Legal Criteria for U.S. Structured Finance Transactions

The full report providing additional analytical detail is available by clicking on the link or by contacting us at info@dbrs.com.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.