DBRS Finalizes Provisional Ratings on MFA 2017-RPL1 Mortgage-Backed Notes, Series 2017-RPL1

DBRS, Inc. (DBRS) has today finalized its provisional ratings on MFA 2017-RPL1 Mortgage-Backed Securities, Series 2017-RPL1 (the Notes) issued by MFA 2017-RPL1 Trust (the Trust) as follows:

-- $120.7 million Class A-1 at AAA (sf)
-- $27.2 million Class M-1 at A (sf)
-- $11.7 million Class M-2 at BBB (sf)
-- $10.1 million Class B-1 at BB (sf)
-- $9.9 million Class B-2 at B (sf)

The AAA (sf) ratings on the Notes reflect the 45.10% of credit enhancement provided by the subordinated Notes in the pool. The A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 32.75%, 27.45%, 22.85% and 18.35% of credit enhancement, 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 992 loans with a total principal balance of $219,848,032 as of the Cut-Off Date (April 30, 2017).

The loans are approximately 137 months seasoned. As of the Cut-Off Date, the pool is 100.0% current under the Office of Thrift Supervision (OTS) method and includes 0.6% bankruptcy loans. Compared with other DBRS-rated seasoned transactions, the portfolio exhibits spottier payment histories in the 24 months prior to the Cut-Off Date with 88.0% of the pool having been at least one times 30 days delinquent (1 x 30) under both the OTS and Mortgage Bankers Association delinquency methods. Approximately 10.3% of the mortgage loans have been 0 x 30 for at least the past 24 months, 60.1% have been 0 x 30 for the past 12 months and 66.7% have been 0 x 30 for the past six months.

The portfolio contains 71.4% modified loans. Within the pool, 794 mortgages have non-interest-bearing deferred amounts as of the Cut-Off Date, which equates to 11.4% of the total principal balance. The modifications happened more than two years ago for 45.6% of the modified loans.

As the Sponsor, MFA Financial, Inc. (MFA), or a majority-owned affiliate, will acquire and retain at least a 5% eligible horizontal interest in the securities to be issued 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, the loans will be serviced by Select Portfolio Servicing, Inc.

There will be no advancing of delinquent principal or interest on the 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.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Class A-1 Notes, but such shortfalls on Class M-1 and more subordinate bonds will not be paid until the more senior classes are retired.

The lack of principal and interest advances on delinquent mortgages may increase the possibility of periodic interest shortfalls to the Noteholders; however, principal proceeds used to pay interest to the Notes sequentially and subordination levels greater than expected losses may provide for timely payment of interest to the rated Notes.

On or after the three-year anniversary of the Closing Date (the Redemption Date), the Issuer has the option to redeem the outstanding notes at a price equal to the outstanding class balance plus accrued and unpaid interest, including any interest shortfall and net weighted-average coupon shortfall amounts, and any fees and expenses of the transaction parties.

The ratings reflect transactional strengths that include underlying assets that have an experienced servicer, strong structural features and asset management oversight. Additionally, a due diligence review was performed on the portfolio with respect to regulatory compliance, payment history, data integrity, tax, title/lien and servicing comment review. Updated property values (generally broker price opinions) were provided for all but one of the mortgage loans.

The transaction employs a relatively weak representations and warranties framework that includes an unrated representation provider (MFA), certain knowledge qualifiers and fewer mortgage loan representations relative to DBRS criteria for seasoned pools. Mitigating factors include (1) third-party due diligence review; (2) for representations and warranties with knowledge qualifiers, even if the Sponsor did not have actual knowledge of the breach, the Sponsor is still required to remedy the breach in the same manner as if no knowledge qualifier had been made; and (3) disputes are ultimately subject to determination made in a related arbitration proceeding.

The enforcement mechanism for breaches of representations includes automatic breach reviews by a third-party reviewer for any loans that incur loss upon liquidation or sale of a defaulted mortgage loan.

The DBRS rating of AAA (sf) addresses 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 rating of A (sf), BBB (sf), BB (sf) and B (sf) addresses 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 are detailed in the related 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, Legal Criteria for U.S. Structured Finance, Operational Risk Assessment for U.S. RMBS Originators and Operational Risk Assessment for U.S. RMBS Servicers, 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.