DBRS Assigns Provisional Ratings to Towd Point Mortgage Trust 2015-2

DBRS, Inc. (DBRS) has today assigned the following provisional ratings to the Asset Backed Notes, Series 2015-2 (the Notes) issued by Towd Point Mortgage Trust 2015-2 (the Trust).

-- $360.8 million Class 1-A1 at AAA (sf)
-- $360.8 million Class 1-A1E1 at AAA (sf)
-- $360.8 million Class 1-A1E1X at AAA (sf)
-- $360.8 million Class 1-A1E2 at AAA (sf)
-- $360.8 million Class 1-A1E2X at AAA (sf)
-- $360.8 million Class 1-A1E3 at AAA (sf)
-- $360.8 million Class 1-A1E3X at AAA (sf)

-- $166.4 million Class 2-A1 at AAA (sf)
-- $16.2 million Class 2-A2 at AA (sf)
-- $166.4 million Class 2-A1E1 at AAA (sf)
-- $166.4 million Class 2-A1E1X at AAA (sf)
-- $166.4 million Class 2-A1E2 at AAA (sf)
-- $166.4 million Class 2-A1E2X at AAA (sf)
-- $166.4 million Class 2-A1E3 at AAA (sf)
-- $166.4 million Class 2-A1E3X at AAA (sf)
-- $182.6 million Class 2-A2E at AA (sf)
-- $182.6 million Class 2-A2E1 at AA (sf)
-- $182.6 million Class 2-A2E1X at AA (sf)
-- $182.6 million Class 2-A2E2 at AA (sf)
-- $182.6 million Class 2-A2E2X at AA (sf)
-- $182.6 million Class 2-A2E3 at AA (sf)
-- $182.6 million Class 2-A2E3X at AA (sf)

Class 1-A1E1X, Class 1-A1E2X, Class 1-A1E3X, Class 1-A2E1X, Class 1-A2E2X, Class 1-2E3X, Class 2-A1E1X, Class 2-A1E2X, Class 2-A1E3X, Class 2-A2E1X, Class 2-A2E2X and Class 2-A2E3X are interest-only notes. The class balances represent notional amounts.

Class 1-A1E1, Class 1-A1E1X, Class 1-A1E2, Class 1-A1E2X, Class 1-A1E3, Class 1-A1E3X, Class 1-A2E, Class 1-A2E1, Class 1-A2E1X, Class 1-A2E2, Class 1-A2E2X, Class 1-A2E3, Class 1-A2E3X, Class 1-ME1, Class 1-ME2, Class 1-BE1, Class 1-BE2, Class 1-BE3, Class 2-A1E1, Class 2-A1E1X, Class 2-A1E2, Class 2-A1E2X, Class 2-A1E3, Class 2-A1E3X, Class 2-A2E, Class 2-A2E1, Class 2-A2E1X, Class 2-A2E2, Class 2-A2E2X, Class 2-A2E3, Class 2-A2E3X, Class 2-ME1, Class 2-ME2, Class 2-BE1, Class 2-BE2 and Class 2-BE3 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

Within Group 1, the AAA (sf) ratings on the Notes reflect 49.55% of credit enhancement provided by subordinated Notes in Group 1. Within Group 2, the AAA (sf) and AA (sf) ratings on the Notes reflect 31.65% and 25.00% of credit enhancement, respectively, provided by subordinated Notes in Group 2.

Other than the specified classes above, DBRS does not rate any other classes in this transaction.

This transaction is a securitization of a portfolio of seasoned performing and re-performing residential mortgages comprising two loan groups that are not cross-collateralized. The Group 1 Notes are backed by approximately 3,121 loans with a total principal balance of $715,075,130 as of the Cut-off Date. The Group 2 Notes are backed by approximately 1,289 loans with a total principal balance of $243,423,867 as of the Cut-off Date.

Group 1 contains re-performing loans that have generally been modified, of which 24.3% have non-interest bearing deferred amounts, which equates to 4.9% of the balance of Group 1. For 83.4% of the modified loans, the modifications happened more than two years ago. Within Group 2, none of the loans have been modified or have any deferred amounts.

Within Group 1, the loans are approximately 102 months seasoned and 100.0% current as of the Cut-off Date, including 1.2% bankruptcy performing loans. Approximately 79.4% of the Group 1 pool were zero times 30 days delinquent (0 x 30) in the past 24 months, and 18.8% were 0 x 30 in the past 12 months. Within Group 2, the loans are approximately 76 months seasoned and 100.0% current as of the Cut-off Date. None of the Group 2 loans are in bankruptcy. Approximately 97.0% of the Group 2 pool were 0 x 30 in the past 24 months, and 2.7% were 0 x 30 in the past 12 months. Fifty-nine loans in Group 1 and two loans in Group 2 had servicing transfer-related payment disruptions in March 2015, but these loans had clean 11-month payment histories as of March 1, 2015.

Certain entities affiliated with Cerberus Capital Management, L.P. (Cerberus) acquired the loans, which were originated and previously serviced by various entities through 27 purchases in the secondary market between 2013 and 2015. As of the Cut-off date, Group 1 loans are serviced by Select Portfolio Servicing, Inc. (SPS, 95.8%), Specialized Loan Servicing LLC (SLS, 2.2%) and Carrington Mortgage Services, LLC (Carrington, 2.0%), and Group 2 loans are serviced by SPS (71.5%), Wells Fargo Home Mortgage (WFHM, 13.2%), SLS (12.6%) and Carrington (2.6%), respectively. It is expected that servicing on all of the Carrington- and SLS-serviced loans will be transferred to SPS on or before the Closing Date and June 1, 2015, respectively.

There will not be any advancing of delinquent principal or interest on any mortgages by any servicer; however, the servicers are obligated to make advances in respect of taxes and insurance, reasonable costs and expenses incurred in the course of servicing and disposing of properties.

FirstKey Mortgage, LLC, as the Asset Manager, has the option to sell certain non-performing loans or REO properties to unaffiliated third parties individually or in bulk sales. The asset sale price has to equal a minimum reserve amount in order to maximize liquidation proceeds of such loans or properties. The minimum reserve amount equals the product of 62.0% for Group 1 or 61.2% for Group 2 and the then-current principal amount of the mortgage loans or REO properties within the respective group.

The transaction employs a sequential pay cash flow structure, with no cross-collateralization between the two loan groups. Principal proceeds can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M1 and more subordinate bonds will not be paid until the more senior classes are retired in each respective group.

The ratings reflect transactional strengths that include high-quality underlying assets in Group 2 that have generally performed well through the crisis, a strong servicer and Asset Manager Oversight. Additionally, satisfactory third-party due diligence review was performed on the portfolio with respect to regulatory compliance, payment history, data capture and title and lien review. Updated broker price opinions (BPO) or form 2055 drive-by appraisals were provided for 100% of the pool; however, a reconciliation was not performed on the updated values.

The transaction employs a relatively weak representations and warranties framework that includes one-year sunset, an unrated provider (Cerberus Global Residential Mortgage Opportunities Fund, L.P.), certain knowledge qualifiers and fewer mortgage loan representations relative to DBRS criteria for seasoned pools. Mitigating factors include (1) significant loan seasoning and relatively clean performance history in recent years, (2) comprehensive due diligence review and (3) strong representations and warranties enforcement mechanism, including delinquency review trigger and breach reserve accounts.

The lack of principal and interest advances on delinquent mortgages may increase the possibility of periodic interest shortfalls to the Noteholders. However, principal proceeds can be used to pay interest to the Notes sequentially within each group and subordination levels are greater than expected losses, which may provide for timely payment of interest to the rated Notes.

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

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

The applicable methodologies are RMBS Insight 1.2: U.S. Residential Mortgage-Backed Securities 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 and Legal Criteria for U.S. Structured Finance, 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.

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

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