DBRS Morningstar Assigns Provisional Ratings to Towd Point Mortgage Trust 2019-HY3

DBRS, Inc. (DBRS Morningstar) assigned a provisional rating to the Asset-Backed Securities, Series 2019-HY3 (the Notes) to be issued by Towd Point Mortgage Trust 2019-HY3 (the Trust) as follows:

-- $517.2 million Class A1A at AAA (sf)

The AAA (sf) rating reflects 13.77% of credit enhancement provided by subordinated notes in the pool.

Other than the specified class above, DBRS Morningstar 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, adjustable-rate residential mortgages funded by the Notes. The Notes are backed by 2,846 loans with a total principal balance of $599,784,687 as of the Statistical Calculation Date (August 31, 2019).

The portfolio is approximately 161 months seasoned and contains 13.8% modified loans. The modifications happened more than two years ago for 85.3% of the modified loans. Within the pool, 66 mortgages have non-interest-bearing deferred amounts, which equate to approximately 0.1% of the total principal balance.

As of the Statistical Calculation Date, 93.8% of the pool is current, 5.3% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method and 0.9% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 56.7% 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 0.2% of the pool is exempt from the Ability-to-Repay/Qualified Mortgage (QM) rules. These loans are designated as QM Safe Harbor.

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 2017 and 2019 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.

The loans will be serviced by Select Portfolio Servicing, Inc. (95.7%) and Specialized Loan Servicing LLC (4.3%).

There will not be any advancing of delinquent principal or interest on any mortgages by the servicers or any other party to the transaction; however, the servicers are 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. Bulk sales require an asset sale price to at least equal a minimum reserve amount of the product of (1) 66.34% and (2) the current principal amount of the mortgage loans or REO properties as of the bulk sale date.

When the aggregate pool balance of the mortgage loans is reduced to less than 15% 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.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-Off Date, the holder(s) of more than 50% of the most subordinate class of Notes, or their affiliates, may purchase all of the mortgage loans, REO properties and other properties from the Issuer as long as the aggregate proceeds meet 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 DBRS Morningstar rating of AAA (sf) addresses 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 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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