DBRS Morningstar Assigns Provisional Ratings to Starwood Mortgage Residential Trust 2019-INV1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Mortgage Pass-Through Certificates, Series 2019-INV1 (the Certificates) to be issued by Starwood Mortgage Residential Trust 2019-INV1 (the Issuer) as follows:

-- $233.0 million Class A-1 at AAA (sf)
-- $31.0 million Class A-2 at AA (sf)
-- $47.1 million Class A-3 at A (low) (sf)
-- $19.8 million Class M-1 at BBB (low) (sf)
-- $20.8 million Class B-1 at BB (low) (sf)
-- $15.7 million Class B-2 at B (low) (sf)

The AAA (sf) rating on the Certificates reflects the 38.35% of credit enhancement provided by subordinated Certificates in the pool. The AA (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf) and B (low) (sf) ratings reflect 30.15%, 17.70%, 12.45%, 6.95% and 2.80% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate, expanded prime and non-prime first-lien residential mortgages funded by the issuance of the Certificates. This transaction marks the first issuance on the Starwood Mortgage Residential Trust shelf backed entirely by loans originated to investors under debt service coverage ratio (DSCR) programs. The Certificates are backed by 928 mortgage loans with a total principal balance of $377,946,002 as of the Cut-Off Date (September 1, 2019).

The originators for the mortgage pool are HomeBridge Financial Services, Inc. (40.7%); Luxury Mortgage Corp. (21.2%); Impac Mortgage Corp. (19.9%); FM Home Loans, LLC (13.7%); and other originators, each comprising less than 5% of the mortgage pool. The Servicer of the loans is Select Portfolio Servicing, Inc.

The mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile and the DSCR, where applicable. Since the loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s Ability-to-Repay rules and the TILA-RESPA Integrated Disclosure rule.

The Sponsor, directly or indirectly through a majority-owned affiliate, will retain an eligible horizontal residual interest consisting of the Class B-3 and Class XS Certificates representing at least 5% of the Certificates to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

On or after the earlier of (1) the three-year anniversary of the Closing Date or (2) the date when the aggregate stated principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, Starwood Non-Agency Lending, LLC, as Optional Redemption Holder, may redeem all outstanding Certificates at a price equal to the class balances of the mortgage loans and the fair market value of all real estate–owned properties plus accrued and unpaid interest.

The Seller (SMRF TRS, LLC) will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 or more days delinquent under the Mortgage Bankers Association method at the repurchase price (par plus interest), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Servicer will fund advances of delinquent principal and interest on any mortgage until such loan becomes 180 days delinquent. The Servicer is also obligated to make advances in respect of taxes, insurance premiums and reasonable costs incurred in the course of servicing and disposing of properties.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Certificates as the outstanding more senior Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses first before being allocated to unpaid cap carryover amounts up to Class B-1.

The DBRS Morningstar 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 Certificates. The DBRS Morningstar ratings of A (low) (sf), BBB (low) (sf), BB (low) (sf) and B (low) (sf) address the ultimate payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Certificates.

The ratings reflect transactional strengths that include the following:

-- Improved underwriting standards,
-- Robust loan attributes and pool composition,
-- Satisfactory third-party due diligence review,
-- Strong Servicer and
-- Current loans and faster prepayments.

The transaction also includes the following challenges:

-- Investor loans,
-- Representations and warranties framework and
-- Servicer advances of delinquent principal and interest.

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 Morningstar 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 below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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