DBRS Finalizes Provisional Ratings on Mill City Mortgage Loan Trust 2015-1

DBRS, Inc. (DBRS) has today finalized the following provisional ratings on the Mortgage Backed Securities, Series 2015-1 (the Notes) issued by Mill City Mortgage Loan Trust (the Trust):

-- $100.0 million Class A1 at AAA (sf)
-- $75.0 million Class A2 at AAA (sf)
-- $75.0 million Class A3 at AAA (sf)
-- $39.2 million Class A4 at AAA (sf)
-- $189.2 million Class A5 at AAA (sf)
-- $114.2 million Class A6 at AAA (sf)
-- $75.0 million Class A7 at AAA (sf)
-- $75.0 million Class A8 at AAA (sf)
-- $39.2 million Class A9 at AAA (sf)
-- $189.2 million Class A10 at AAA (sf)
-- $114.2 million Class A11 at AAA (sf)
-- $100.0 million Class AX1 at AAA (sf)
-- $75.0 million Class AX2 at AAA (sf)
-- $75.0 million Class AX3 at AAA (sf)
-- $39.2 million Class AX4 at AAA (sf)
-- $289.2 million Class AX5 at AAA (sf)

Classes AX1, AX2, AX3, AX4 and AX5 are interest-only notes. The class balances represent notional amounts.

Classes A5, A6, A7, A8, A9, A10, A11 and AX5 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect 39.00% of credit enhancement provided by subordinated Notes in the pool.

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 re-performing residential mortgages. The Notes are backed by approximately 1,369 loans with a total principal balance of $474,159,004 as of the Cut-Off Date (October 31, 2015).

The portfolio contains seasoned re-performing loans that have generally been modified, of which 137 loans have non-interest-bearing deferred amounts, equating to 1.4% of the total principal balance as of the Cut-Off Date. The modifications happened more than two years ago for majority of the modified loans.

The loans are approximately 106 months seasoned and all are current as of the Cut-Off Date, including 0.3% bankruptcy performing loans. Approximately 94.1% and 99.8% of the mortgage loans have been zero times 30 days delinquent for at least the past 24 months under Mortgage Banker Associations and the Office of Thrift Supervision delinquency methods, respectively.

As of the Cut-Off Date, the loans are serviced by Resurgent d/b/a Shellpoint Mortgage Servicing (56.2%) and Fay Servicing, LLC (43.8%).

There will not be any advancing of delinquent principal or interest on any mortgages by the servicers or any other party to the transaction; 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.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M2 and more subordinate bonds will not be paid until the more senior classes are retired.

The ratings reflect transactional strength in that the underlying assets have generally performed well through the crisis. Additionally, a satisfactory third-party due diligence review was performed on the portfolio with respect to regulatory compliance, payment history, data capture as well as title and lien review. Updated broker price opinions or exterior 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 a 13-month sunset, an unrated provider (CVI CVF II Lux Master S.à.r.l), certain knowledge qualifiers and fewer mortgage loan representations relative to DBRS criteria for seasoned pools. Mitigating factors include (1) significant loan seasoning and relative clean performance history in recent years, (2) comprehensive due diligence review and (3) representations and warranties enforcement mechanism, including a delinquency review trigger and a breach reserve account.

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 rated Notes, 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 rating 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 Rating U.S. Structured Finance 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.

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.