DBRS Assigns Provisional Ratings to Flagstar Mortgage Trust 2017-1

DBRS, Inc. (DBRS) has today assigned provisional ratings to the Mortgage Pass-Through Certificates, Series 2017-1 (the Certificates) issued by Flagstar Mortgage Trust 2017-1 (the Trust) as follows:

-- $365.9 million Class 1-A-1 at AAA (sf)
-- $365.9 million Class 1-A-2 at AAA (sf)
-- $343.4 million Class 1-A-3 at AAA (sf)
-- $343.4 million Class 1-A-4 at AAA (sf)
-- $257.6 million Class 1-A-5 at AAA (sf)
-- $257.6 million Class 1-A-6 at AAA (sf)
-- $85.9 million Class 1-A-7 at AAA (sf)
-- $85.9 million Class 1-A-8 at AAA (sf)
-- $22.4 million Class 1-A-9 at AAA (sf)
-- $22.4 million Class 1-A-10 at AAA (sf)
-- $365.9 million Class 1-A-X-1 at AAA (sf)
-- $365.9 million Class 1-A-X-2 at AAA (sf)
-- $343.4 million Class 1-A-X-3 at AAA (sf)
-- $257.6 million Class 1-A-X-4 at AAA (sf)
-- $85.9 million Class 1-A-X-5 at AAA (sf)
-- $22.4 million Class 1-A-X-6 at AAA (sf)
-- $50.2 million Class 2-A-1 at AAA (sf)
-- $47.1 million Class 2-A-2 at AAA (sf)
-- $3.1 million Class 2-A-3 at AAA (sf)
-- $50.2 million Class 2-A-X-1 at AAA (sf)
-- $9.1 million Class B-1 at AA (sf)
-- $7.8 million Class B-2 at A (sf)
-- $5.3 million Class B-3 at BBB (sf)
-- $2.4 million Class B-4 at BB (sf)
-- $1.1 million Class B-5 at B (sf)

Classes 1-A-X-1, 1-A-X-2, 1-A-X-3, 1-A-X-4, 1-A-X-5, 1-A-X-6 and 2-A-X-1 are interest-only certificates. The class balances represent notional amounts.

Classes 1-A-1, 1-A-2, 1-A-3, 1-A-4, 1-A-5, 1-A-7, 1-A-9, 1-AX-2, 1-AX-3 and 2-A-1 are exchangeable certificates. These classes can be exchanged for a combination of depositable certificates as specified in the offering documents.

Classes 1-A-3, 1-A-4, 1-A-5, 1-A-6, 1-A-7, 1-A-8 and 2-A-2 are super-senior certificates. These classes benefit from additional protection from senior support certificates (Classes 1-A-9, 1-A-10 and 2-A-3) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect the 6.25% of credit enhancement provided by subordinated Certificates in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 4.20%, 2.45%, 1.25%, 0.70% and 0.45% 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 first-lien, fixed-rate, prime residential mortgages. The Certificates are backed by 668 loans with a total principal balance of $443,790,711 as of the Cut-off Date (July 1, 2017).

The loans are divided into two groups: Group 1 and Group 2. Group 1 consists of fully amortizing fixed-rate mortgages (FRMs) with original terms to maturity of 20 to 30 years, while Group 2 consists of fully amortizing FRMs with original terms to maturity of 15 years.

Flagstar Bank, FSB is the originator and servicer of the mortgage loans and the sponsor of the transaction. Wells Fargo Bank, N.A. will act as the Master Servicer, Securities Administrator, Certificate Registrar and Custodian. Wilmington Trust, National Association will serve as Trustee. Inglet Blair LLC will act as the Representation and Warranty Reviewer.

The transaction employs a senior-subordinate shifting-interest cash flow structure that is enhanced from a pre-crisis structure. Group 1 and Group 2 senior certificates will be backed by collateral from each pool, respectively. The subordinate certificates will be cross-collateralized between the two pools. This is generally known as Y-Structure.

Unique to this transaction, the servicing fee payable to the Servicer comprises three separate components: the base servicing fee, the aggregate delinquent servicing fee and the aggregate incentive servicing fee. These fees vary based on the delinquency status of the related loan and will be paid from interest collections before distribution to the securities. The base servicing fee will reduce the Net weighted-average coupon (WAC) payable to certificateholders as part of the aggregate expense calculation. However, the delinquent and incentive servicing fees will not be included in the reduction of Net WAC and will thus reduce available funds entitled to the certificateholders (except for the Class B-6-C Net WAC). To capture the impact of such potential fees, DBRS ran additional cash flow stresses based on its 60+-day delinquency and default curves, as detailed in the Cash Flow Analysis section of the related report.

The ratings reflect transactional strengths that include high-quality underlying assets, well-qualified borrowers and satisfactory third-party due diligence review.

This transaction employs a R&W framework that contains certain weaknesses, such as materiality factors, an unrated R&W provider, knowledge qualifiers and sunset provisions that allow for certain R&Ws to expire within three to six years after the Closing Date. The framework is perceived by DBRS to be limiting compared with traditional lifetime R&W standards in certain DBRS-rated securitizations. To capture the perceived weaknesses in the representations and warranties framework, DBRS reduced the originator score in this pool. A lower originator score results in increased default and loss assumptions and provides additional cushions for the rated securities.

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, Legal Criteria for U.S. Structured Finance, Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules, 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.