DBRS Assigns Provisional Ratings to Towd Point Mortgage Trust 2017-2

DBRS, Inc. (DBRS) has today assigned the following provisional ratings to the Asset Backed Securities, Series 2017-2 (the Notes) issued by Towd Point Mortgage Trust 2017-2 (the Trust):

-- $584.8 million Class A1 at AAA (sf)
-- $56.7 million Class A2 at AA (sf)
-- $61.0 million Class M1 at A (sf)
-- $49.2 million Class M2 at BBB (sf)
-- $45.4 million Class B1 at BB (sf)
-- $35.9 million Class B2 at B (sf)
-- $641.5 million Class A3 at AA (sf)
-- $702.5 million Class A4 at A (sf)

The AAA (sf) ratings on the Notes reflect the 38.15% of credit enhancement provided by subordinated Notes in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect credit enhancement of 32.15%, 25.70%, 20.50%, 15.70% and 11.90%, respectively.

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 first-lien residential mortgages. The Notes are backed by 4,946 loans with a total principal balance of $945,478,522 as of the Statistical Calculation Date (March 31, 2017).

The portfolio contains 78.7% modified loans. Within the pool, 1,541 mortgages have non-interest-bearing deferred amounts, which equates to 5.7% of the total principal balance. The modifications happened more than two years ago for 82.9% of the modified loans. The loans are approximately 125 months seasoned. All loans (100.0%) were current as of the Statistical Calculation Date, including 0.8% bankruptcy-performing loans. Approximately 53.7% of the mortgage loans have been zero times 30 days delinquent for at least the past 24 months under both the Office of Thrift Supervision and Mortgage Bankers Association delinquency methods. In accordance with the CFPB Qualified Mortgage (QM) rules, 1.8% of the loans are designated as QM Safe Harbor, less than 0.1% as QM Rebuttable Presumption and none as non-QM. Approximately 98.2% of the loans are not subject to the QM rules.

FirstKey Mortgage, LLC (FirstKey) will acquire the loans from various transferring trusts on or prior to the Closing Date. The transferring trusts acquired the mortgage loans between 2013 and 2017 and are beneficially owned by both the Responsible Party and other funds managed by affiliates of Cerberus Capital Management, L.P. Upon acquiring the loans from the transferring trusts, FirstKey, through a wholly owned subsidiary, Towd Point Asset Funding, LLC (the Depositor), will contribute loans to the Trust. As the Sponsor, FirstKey, through a majority-owned affiliate, will acquire and retain a 5% eligible vertical interest in each class of securities to be issued (other than any residual certificates) to satisfy the credit risk retention requirements. These loans were originated and previously serviced by various entities through purchases in the secondary market. As of the Closing Date, all loans will be serviced by Select Portfolio Servicing, Inc.

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

FirstKey, as the Asset Manager, has the option to sell certain non-performing loans or real estate owned (REO) properties to unaffiliated third parties individually or in bulk sales. The asset sale price has to equal a minimum reserve amount to maximize liquidation proceeds of such loans or properties. The minimum reserve amount equals the product of 61.37% and the then-current principal amount of the mortgage loans or REO properties. In addition, on the payment date when the aggregate pool balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the holders of more than 50% of the Class X Certificates will have the option to cause the Issuer to sell all of its remaining property (other than amounts in the Breach Reserve Account) to one or more third-party purchasers so long as the aggregate proceeds meets a minimum price.

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 M1 and more subordinate bonds will not be paid until the more senior classes are retired.

The ratings reflect transactional strengths that include underlying assets that generally performed well through the crisis, strong servicers and Asset Manager oversight. Additionally, a satisfactory third-party due diligence review was performed on the portfolio with respect to regulatory compliance, payment history and data capture as well as title and tax review. Servicing comments were reviewed for a sample of loans. Updated broker price opinions or exterior appraisals were provided for 100.0% 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 representation provider (FirstKey) with a backstop by an unrated entity (Cerberus Global Residential Mortgage Opportunity 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 relative clean performance history in recent years, (2) a comprehensive due diligence review and (3) a 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 and subordination levels are greater than expected losses, which may provide for timely payment of interest to the rated Notes.

The DBRS ratings of AAA (sf) and AA (sf) address the timely payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes. The DBRS ratings of A (sf), BBB (sf), BB (sf) and B (sf) address the ultimate payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes.

The full description of the strengths, challenges and mitigating factors is detailed in the related presale report. Please see the related appendix for additional information regarding sensitivity of assumptions used in the rating process.

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

The principal methodologies are RMBS Insight 1.3: 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, Operational Risk Assessment for U.S. RMBS Originators, Operational Risk Assessment for U.S. RMBS Servicers and Legal Criteria for U.S. Structured Finance, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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.