DBRS Assigns Ratings to Morgan Stanley Resecuritization Trust 2014-R3

DBRS has today assigned the following ratings to the Resecuritization Pass-Through Certificates, Series 2014-R3 issued by Morgan Stanley Resecuritization Trust 2014-R3 (the Trust).

-- $34.1 million Class 2-A1 rated AAA (sf)
-- $1.9 million Class 2-A2 rated AA (sf)
-- $2.4 million Class 2-A3 rated A (sf)
-- $2.9 million Class 2-A4 rated BBB (sf)
-- $41.2 million Class 2-A rated BBB (sf)
-- $11.1 million Class 3-A1 rated AAA (sf)
-- $0.8 million Class 3-A2 rated AA (sf)
-- $0.8 million Class 3-A3 rated A (sf)
-- $0.8 million Class 3-A4 rated BBB (sf)
-- $13.5 million Class 3-A rated BBB (sf)
-- $16.8 million Class 4-A1 rated AAA (sf)
-- $1.7 million Class 4-A2 rated AA (sf)
-- $1.4 million Class 4-A3 rated A (sf)
-- $2.1 million Class 4-A4 rated BBB (sf)
-- $22.0 million Class 4-A rated BBB (sf)
-- $22.0 million Class 4-AM rated BBB (sf)

Classes 2-A1, 2-A2, 2-A3, 2-A4, 3-A1, 3-A2, 3-A3, 3-A4, 4-A1, 4-A2, 4-A3 and 4-A4 are Base Certificates. Classes 2-A, 3-A, 4-A and 4-AM are Exchangeable Certificates.

There are four groups in this resecuritization trust. DBRS rates securities Groups 2, 3 and 4, each consisting of one to four seasoned senior residential mortgage-backed security (RMBS). The ratings on the securities reflect the credit enhancement provided by subordination and the quality of the underlying asset. Other than the specified classes above, DBRS does not rate any other securities in this transaction.

The Base Certificates can be exchanged for the Exchangeable Certificates, and vice versa, subject to the conditions and procedures described in further detail in the private placement memorandum.

Interest and principal payments on the securities will be made on the business day following the latest underlying distribution date (generally the 25th day of each month), commencing in June 2014. Interest payments will be distributed on a pro rata basis to the securities. Principal payments will be distributed on a sequential basis, until the principal balances have been reduced to zero.

Any losses realized from the underlying security will be allocated in a reverse sequential order, until the principal balances have been reduced to zero.

Each DBRS-rated group is a resecuritization of one seasoned senior RMBS, represented by a real estate mortgage investment conduit (REMIC). The REMIC is backed by pools of seasoned subprime, Alt-A, Option ARM, first-lien, one- to four-family, fixed-rate and adjustable-rate residential mortgages.

In analyzing loans with interest rate based on the 12-Month Treasury Average (MTA) index, DBRS now uses MTA curves that are calculated as the average of one year’s worth of historical Unified Interest Rate Model one-year Constant Maturity Treasury values.

The ratings assigned to the offered securities address (1) the likelihood of the receipt by securityholders of all principal distributions to which such securityholders are entitled and (2) the likelihood of the receipt by securityholders of the amount of interest actually received by the trust to the extent payable to each class in accordance with the priorities described in the operative documents (as such interest received by the trust may have been reduced as a result of any interest shortfalls allocated to the related underlying securities, and as such interest entitlement may be further reduced by the allocation of extraordinary trust expenses).

DBRS ReREMIC METHODOLOGY EXCERPT:
Since a ReREMIC is a pass-through of interest, principal and losses from the underlying certificates, its interest entitlement is usually capped at the actual interest amount collected on the underlying securities. In other words, a ReREMIC trust cannot pay out more interest than it receives from its collateral, and sometimes, what is collected on the underlying securities can be as low as zero.

When rating ReREMICs, DBRS is assessing the ability of the trust making the full principal payment by the legal final maturity date of the transaction. These transactions typically define interest rate as the lesser of the bond coupon and the available interest funds. Hence, the DBRS rating does not provide an opinion on the timeliness or amount of interest payments the investor may receive. The trust’s only obligation is to pass through the interest proceeds net of fees from the underlying securities.

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

The applicable methodology is RMBS Insight 1.2: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, which can be found on our website under Methodologies.

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.

The ratings are endorsed by DBRS Ratings Limited for use in the European Union.

DBRS's rating definitions and the terms of use of such ratings are available at www.dbrs.com.