DBRS Assigns Provisional Ratings to OBX 2018-1 Trust

DBRS, Inc. (DBRS) assigned the following provisional ratings to the Mortgage-Backed Notes, Series 2018-1 (the Notes) issued by OBX 2018-1 Trust (the Trust):

-- $297.8 million Class A-1 at AAA (sf)
-- $297.8 million Class A1-IO at AAA (sf)
-- $297.8 million Class A-1A at AAA (sf)
-- $293.9 million Class A-2 at AAA (sf)
-- $293.9 million Class A2-IO at AAA (sf)
-- $293.9 million Class A-2A at AAA (sf)
-- $3.9 million Class A-3 at AAA (sf)
-- $3.9 million Class A3-IO at AAA (sf)
-- $3.9 million Class A-3A at AAA (sf)
-- $7.2 million Class B-1 at AA (sf)
-- $7.2 million Class B1-IO at AA (sf)
-- $7.2 million Class B-1A at AA (sf)
-- $6.2 million Class B-2 at A (sf)
-- $6.2 million Class B2-IO at A (sf)
-- $6.2 million Class B-2A at A (sf)
-- $6.4 million Class B-3 at BBB (sf)
-- $6.4 million Class B3-IO at BBB (sf)
-- $6.4 million Class B-3A at BBB (sf)
-- $4.1 million Class B-4 at BB (sf)
-- $1.6 million Class B-5 at B (sf)

Classes A1-IO, A2-IO, A3-IO, B1-IO, B2-IO and B3-IO are interest-only (IO) notes. The class balances represent notional amounts.

Classes A-1, A1-IO, A-1A, A-2A, A-3A, B-1A, B-2A and B-3A are exchangeable notes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect the 8.80% of credit enhancement provided by subordinated Notes in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 6.60%, 4.70%, 2.75%, 1.50% and 1.00% 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 920 loans with a total principal balance of $327,161,760 as of the Cut-Off Date (February 28, 2018). Unless otherwise specified, the statistical information on the mortgage loans in this press release is based on the unpaid interest-bearing principal balance of $326,553,472. Additionally, the FICO scores in this press release are calculated as the lower of the FICO scores of the primary borrower and co-borrower.

The mortgage pool consists of two portfolios:

(1) Wells Fargo Serviced Mortgage Loans (62.7%): These loans were aggregated from collapsing two seasoned prime securitizations, BSARM 2005-2 and BSARM 2005-5. These loans are very seasoned (169 months), with a weighted-average (WA) FICO of 736 and WA loan-to-value (LTV) of 36.0%. Only 5.1% of these loans were modified, and 90.5% of the loans have been zero times 30 days delinquent (0 x 30) for at least the past 24 months under the Mortgage Bankers Association (MBA) delinquency methods. As of the Cut-Off Date, these loans are serviced by Wells Fargo Bank, N.A (Wells Fargo Bank; rated AA with a Stable trend by DBRS).

(2) SLS Serviced Mortgage Loans (37.3%): These loans are, on average, four years seasoned with a WA FICO of 752 and WA LTV of 52.4%. Only 0.3% of these loans were modified, and 81.3% of the loans have been 0 x 30 for at least the past 24 months under the MBA delinquency methods. In accordance with the Consumer Financial Protection Bureau’s Ability-to-Repay and Qualified Mortgage (QM) rules, approximately 13.0% of the loans are designated as non-QM, 9.5% as QM Safe Harbor and the rest as not subject to the rules. While certain attributes are comparable with post-crisis prime transactions, these hybrid adjustable-rate mortgages may have IO features and a more barbelled distribution of certain characteristics such as credit scores and debt-to-income compared with recent prime securitizations. Additionally, this portfolio has a relatively higher concentration of self-employed borrowers and investor loans. As of the Cut-Off Date, these loans are serviced by Specialized Loan Servicing LLC (SLS).

Within the pool, eight mortgages have non-interest-bearing deferred amounts, which equates to 0.2% of the total principal balance.

The Seller, Onslow Bay Financial LLC (OBF), acquired the loans prior to the Closing Date through various sellers or in connection with the termination of securitization trusts. Upon acquiring the loans, OBF, through an affiliate, Onslow Bay Funding LLC (the Depositor), will contribute the loans to the Trust. The Seller intends to retain (directly or through a majority-owned affiliate) 5.0% of the offered notes and the Class A-IO-S Notes to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

Wells Fargo Bank will be the Master Servicer for this transaction. If any loan that is being serviced by Wells Fargo Bank becomes 90 days delinquent, then such loan will be transferred to SLS.

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.

Unlike other seasoned loan securitizations with no interest-advancing mechanism, where a sequential-pay cash flow structure is typically utilized, this transaction employs a senior-subordinate shifting-interest structure. For transactions with no interest-advancing mechanism, there is generally a higher possibility of periodic interest shortfalls to the Noteholders as interest is not collected nor advanced on any delinquent mortgages. To mitigate the potential interest shortfalls, this transaction employs a structural feature that reduces the interest entitlements to the Noteholders by the amount of delinquent interest.

The Seller will have the option to repurchase any loan that becomes 60 or more days delinquent under the MBA method or any REO property acquired in respect of a mortgage loan at a price equal to the unpaid principal balance of the loan (Optional Delinquent Repurchase Price) provided that such repurchases will be limited to 10.0% of the principal balance of the mortgage loans as of the Cut-Off Date.

The ratings reflect transactional strengths that include underlying assets that have considerable borrower equity, good credit quality and relatively clean payment histories. Additionally, satisfactory third-party due diligence was performed on the pool for regulatory compliance, title/lien, payment history and data integrity. Updated Home Data Index and/or broker price opinions were provided for the pool; however, a reconciliation was not performed on the updated values.

The transaction employs a relatively strong representations and warranties framework with a few limitations that include a trigger review period, certain knowledge qualifiers, an unrated representation provider and fewer mortgage loan representations relative to DBRS criteria for seasoned pools.

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

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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