DBRS Assigns Provisional Ratings to Towd Point Mortgage Trust 2019-SJ2

DBRS, Inc. (DBRS) assigned provisional ratings to the following Asset-Backed Securities, Series 2019-SJ2 (the Notes) issued by Towd Point Mortgage Trust 2019-SJ2 (the Issuer):

-- $546.4 million Class A1 at AAA (sf)
-- $81.5 million Class A2 at AA (sf)
-- $627.9 million Class A3 at AA (sf)

The Class A3 notes are exchangeable notes and can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) and AA (sf) ratings reflect credit enhancements of 49.70% and 42.20%, respectively, provided by subordinated notes in the pool.

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 junior (second or more subordinate) lien residential mortgages. The Notes are backed by 26,869 loans with a total principal balance of $1,086,262,657 as of the Statistical Calculation Date (January 31, 2019). Unless specified otherwise, all statistics regarding the mortgage loans in this press release are based on the Statistical Calculation Date.

The portfolio is approximately 147 months seasoned and 23.5% of the loans are modified. The modifications happened more than two years ago for 72.1% of the modified loans. Within the pool, 762 mortgages have non-interest-bearing deferred amounts, which equate to 0.5% of the total principal balance. The weighted-average (WA) FICO for this pool is 699 and the WA Issuer-estimated current combined loan-to-value ratio is 76.5%.

As of the Statistical Calculation Date, 100.0% of the pool is current under the Mortgage Bankers Association (MBA) delinquency method, including the 0.8% that is in bankruptcy. Approximately 86.1%, 71.2% and 63.3%, respectively, of the mortgage loans have been zero times 30 days delinquent for at least the past 12 months, 24 months and 36 months, respectively, under the MBA delinquency method. All the loans in the pool pre-date and are exempt from the Ability-to-Repay/Qualified Mortgage rules.

A majority-owned affiliate of the Sponsor will acquire, and intends to retain, a 5% interest in each class of securities (other than the Class R Certificates) to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

Specialized Loan Servicing LLC will service 80.1% of the loans and Select Portfolio Servicing, Inc. will service 19.9% of the loans. Servicer write-ups can be found in the related report, which includes details on the servicing practices of junior liens.

For this junior lien transaction, any loan that is 150 days delinquent under the Office of Thrift Supervision delinquency method (equivalent to 180 days delinquent under the MBA delinquency method) will be considered a Charged Off Loan. With respect to a Charged Off Loan the total unpaid principal balance will be considered a realized loss and will be allocated reverse sequentially to the Noteholders. If there are any subsequent recoveries for such Charged Off Loans, the recoveries will be included in the principal remittance amount and applied in accordance with the principal distribution waterfall; in addition, any class principal balances of Notes that had been previously reduced by allocation of such realized losses may be increased by such recoveries sequentially in order of seniority. DBRS in its analysis assumes no recoveries upon default on any loans in this pool.

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.

There will not be any advancing of delinquent principal or interest on any mortgages by the servicer or any other party to the transaction. In addition, the servicer is not 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 unless a determination is made that there will be material recoveries.

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 meet a minimum price (Bulk Sale Right). In addition, on any payment date occurring on or after March 2022, the Issuer may, at its option, redeem all of the outstanding Notes and Certificates as long as the proceeds meet a minimum price (Optional Call).

The lack of principal and interest advances on delinquent mortgages may result in 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, strong servicers and Asset Manager oversight. Updated broker price opinions or exterior appraisals (35.9% by Unpaid Principal Balance (UPB)) and/or Automated Valuation Models (94.0% by UPB) were provided for the entire 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 report.

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

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, which can be found on dbrs.com under Methodologies & Criteria.

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.

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