DBRS Finalizes Provisional Ratings on Towd Point Mortgage Trust 2018-5

DBRS, Inc. (DBRS) finalized its provisional ratings on the following Asset-Backed Securities, Series 2018-5 (the Notes) to be issued by Towd Point Mortgage Trust 2018-5 (the Trust):

-- $595.1 million Class A1 at AAA (sf)
-- $476.0 million Class A1A at AAA (sf)
-- $119.0 million Class A1B at AAA (sf)
-- $53.6 million Class A2 at AA (sf)
-- $648.7 million Class A3 at AA (sf)

Classes A1 and A3 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) rating on the Class A1 notes reflects the 29.00% credit enhancements provided by subordinated notes in the pool. The AA (sf) ratings reflect credit enhancement of 22.60%.

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- or second-lien residential mortgages. The Notes are backed by 3,740 loans with a total principal balance of $838,106,847 as of the Cut-Off Date (August 31, 2018).

The Notes are backed by 3,829 loans with a total principal balance of $851,578,001 as of the Statistical Calculation Date (July 31, 2018). Unless specified otherwise, all the statistics regarding the mortgage loans in this press release are based on the Statistical Calculation Date.

The portfolio is approximately 144 months seasoned, and of the loans, 95.4% are modified. The modifications happened more than two years ago for 89.8% of the modified loans. Within the pool, 952 mortgages have non-interest-bearing deferred amounts, which equate to 8.8% of the total principal balance. Included in the deferred amounts are Home Affordable Modification Program and proprietary principal forgiveness amounts, which comprise approximately 0.3% of the total principal balance.

As of the Statistical Calculation Date, 96.8% of the pool is current, 3.2% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method and 0.5% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent).

Approximately 71.1% of the mortgage loans have been zero times 30 days delinquent for at least the past 24 months under the MBA delinquency method. All but ten loans in this pool are exempt from the Ability-to-Repay/Qualified Mortgage 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 2014 and 2018 and are beneficially owned by 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 the 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, installment payments on energy improvement liens, and 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 67.64% and the then-current principal amount of the mortgage loans or REO properties. In addition, on any payment date on or after the first payment date when the aggregate pool balance of the mortgage loans is reduced to less than 30.0% 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 and excess interest can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M1 and more subordinate bonds will not be paid from principal proceeds 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 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 ratings reflect transactional strengths that include underlying assets that generally performed well through the crisis, as well as a strong servicer 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 a title and tax review. Servicing comments were reviewed for a sample of the loans. Updated broker price opinions or exterior appraisals were provided for most of the pool; however, a reconciliation was not performed on the updated values.

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 full description of the strengths, challenges and mitigating factors is detailed in the related presale 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, Interest Rate Stresses for 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 for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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 or by contacting us at info@dbrs.com.