DBRS Assigns Provisional Ratings to Towd Point HE Trust 2019-HE1

DBRS, Inc. (DBRS) assigned provisional ratings to the following Asset-Backed Securities, Series 2019-HE1 (the Notes) to be issued by Towd Point HE Trust 2019-HE1 (TPHT 2019-HE1 or the Trust):

-- $189.1 million Class A1 at AAA (sf)
-- $28.9 million Class A2 at AA (sf)
-- $218.0 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 on the Notes reflect 31.90% and 21.50%, respectively, of credit enhancement 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 pool of home equity lines of credit (HELOCs) funded by the issuance of mortgage pass-through notes (the Notes). DBRS considers this transaction to be a seasoned performing HELOC securitization. The transaction includes a significantly seasoned first-lien portion and moderately seasoned second-lien portion. The Notes are backed by 1,732 HELOCs with a total unpaid principal balance (UPB) of $277,743,549 and total current credit limit of $351,087,379 as of the Statistical Calculation Date (April 30, 2019).

HELOC loans generally have a draw period during which borrowers may make draws, up to a credit limit, which would result in increased loan balances. The first and second liens in this securitization have differences in their respective draw and repayment features. Each first lien has a draw period that lasts for the entire 30-year term. After the first ten years, the borrowers are still allowed to draw, but their loan credit limits are amortized downward evenly over the remaining 20-year term. Each second lien has a draw period of ten years with a repayment period over the next 20 years. During the repayment period, borrowers are no longer allowed to draw. In addition, their monthly principal payments during the repayment period will equal an amount that allows the outstanding loan balance to evenly amortize down over this 20-year term. Borrowers for the first and second liens are generally only required to make accrued and unpaid interest payments during the draw period, except in certain instances for the first-lien HELOCs (following the first ten years) where the principal balance exceeds the credit limit.

HELOCs are not subject to 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 (SLS or the Servicer) will service 100.0% of the loans in the pool. A Servicer writeup can be found in the Servicer section of the related report, which includes details on servicing practices related to HELOCs and second liens.

In this transaction, any second-lien that is 180 days delinquent under the Mortgage Bankers Association delinquency method will be considered a Charged-Off Loan. With respect to such loans, the total UPB will be considered a realized loss. In its analysis, DBRS assumes no recoveries upon default on any second liens in this pool.

This transaction introduces a structural mechanism to fund any draw requests. The Servicer is obligated to fund draws and is entitled to reimburse itself for such draws prior to any payments on the Notes from the principal collections. If the aggregate draws exceed the principal collections (Net Draws), then the Servicer can request reimbursement from amounts on deposit in the variable-funding account (VFA), which has an initial balance of $100,000. On each Payment Date, the holder of the Class D Certificates is required to deposit an amount equal to any unreimbursed Net Draws into the VFA. The principal balance of the Class D Certificates will increase by any Net Draws funded using amounts in the VFA. If, in a certain month/intra-month, the Net Draws exceeds $5,000,000, then the Servicer has the right to notify the Indenture Trustee, who will then request the Class D Certificateholder to wire funds to deposit into the VFA for immediate reimbursement to the Servicer.

The transaction is expected to employ a sequential-pay cash flow structure with a pro-rata principal distribution among the more senior tranches (Class A1, A2 and M1) subject to a sequential priority trigger (i.e., cumulative loss, delinquency and minimum credit enhancement tests). The Class D Certificates will have a pro-rata principal distribution with the entire senior and subordinate tranches, as a whole, as long as the sequential priority trigger is not in effect. If the trigger is in effect, then the Class D Certificates principal distribution will be subordinated to the senior and subordinate tranches in the payment waterfall.

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 for the first-lien loans in respect of homeowner association fees, taxes and insurance, installment payments on energy improvement liens as well as reasonable costs and expenses incurred in the course of servicing and disposing properties. The Servicer is also obligated to fund any draws.

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. In addition, on any payment date occurring on or after June 2022, the Issuer may, at its option, redeem all of the outstanding Notes and Certificates as long as the proceeds meet a minimum price.

STRENGTHS
-- Robust Pool Composition
-- Current Loans with Robust Pay Histories
-- Strong Servicer
-- Satisfactory Third-Party Due Diligence Review for First Liens
-- Asset Manager Oversight

CHALLENGES
-- Representations and Warranties Standard
-- Limited Third-Party Due Diligence Review for Second Liens
-- Holder of the Class D Certificates May Fail to Reimburse Servicer for Draws
-- No Servicer Advances of Delinquent Principal and Interest

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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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