DBRS Morningstar Assigns Ratings to Four ReREMIC Transactions

DBRS, Inc. (DBRS Morningstar) assigned ratings to the following securities from four ReREMIC transactions:

APS Resecuritization Trust 2016-1
-- Class 1-A at AAA (sf)

GSMSC Resecuritization Trust 2015-7R
-- Class A at AAA (sf)

GSMSC Resecuritization Trust 2015-8R
-- Class A at AA (sf)

Nomura Resecuritization Trust 2016-1R
-- Class 3A1 at AAA (sf)

The above referenced securities are currently also rated by our affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these securities Under Review–Analytical Integration Review and that MCR intended to withdraw its outstanding ratings; such withdrawal will occur on or about [January 2, 2020]. In accordance with MCR’s engagement letter covering these securities, upon withdrawal of MCR’s outstanding ratings, the DBRS Morningstar ratings will become the successor ratings to the withdrawn MCR ratings. Information about the MCR ratings, including the history of the MCR ratings, can be found at https://ratingagency.morningstar.com/mcr.

These transactions are generally classified as ReREMIC transactions.

Since a ReREMIC is a pass-through of interest, principal and losses from the underlying certificates, its interest entitlement is usually capped at the actual interest amount collected on the underlying securities. In other words, a ReREMIC trust cannot pay out more interest than it receives from its collateral and what is collected on the underlying securities can sometimes be as low as zero.

When rating ReREMICs, DBRS is assessing the ability of the trust to make the full principal payment by the legal final maturity date of the transaction. These transactions typically define interest rate as the lesser of the bond coupon and the available interest funds. Hence, the DBRS rating does not provide an opinion on the timeliness or amount of interest payments that the investor may receive. The trust’s only obligation is to pass through the interest proceeds, net of fees from the underlying securities.

DBRS Morningstar performed the following rating analysis for these transactions:
-- Loan-level default probability, loss severity, and expected loss review;
-- Cash flow analysis incorporating prepayment, loss timing, and interest rate assumptions, to evaluate the form and sufficiency of available credit enhancement;
--Historical performance analysis as reflected in delinquencies, cumulative losses, and constant prepayment rates.

POOL EXPECTED LOSSES
DBRS Morningstar used its proprietary RMBS Insight 1.3 model to derive probability of defaults, loss severities, and expected losses for these transactions.

CASH FLOW ANALYSIS
A structural analysis that encompassed 12 cash flow stress scenarios was performed, which focused on prepayment speeds, timing of losses, and interest rate stresses. Additionally, WAC deterioration stresses were incorporated in the runs.

OPERATIONAL RISK REVIEW
For these Re-REMIC securitizations, DBRS Morningstar did not perform originator reviews for the purpose of evaluating the mortgage pools in accordance with its RMBS rating methodology. DBRS Morningstar believes that the performance history of the seasoned loans is more indicative of credit risk than the dated origination and underwriting practices. Origination risks should have manifested in transaction performance over time and are therefore captured through the seasoned characteristics in the DBRS Morningstar RMBS Insight model.

HISTORICAL PERFORMANCE
DBRS Morningstar reviewed historical performance for these transactions, as reflected in delinquencies, cumulative losses, and constant prepayment rates (CPR).

OTHER REVIEWS
DBRS Morningstar notes that a legal analysis, which included but was not limited to legal opinions and various transaction documents, was performed by MCR as part of its process of assigning new ratings to each transaction on or prior to the closing date. For the purpose of assigning new ratings to the transactions, DBRS Morningstar did not perform additional document reviews unless otherwise indicated in this press release.

SUMMARY
The ratings are a result of DBRS Morningstar’s application of the “RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology” published in June 2019, unless otherwise indicated in this press release.

DBRS Morningstar’s ratings in the highest and second-highest rating categories 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 ratings assigned to the classes specified above are initiated by DBRS Morningstar as part of the recently announced analytical integration for certain overlapping U.S RMBS asset classes (see the August 30, 2019 press release, "DBRS and Morningstar Credit Ratings Confirm U.S. RMBS Asset Class Coverage"). As such, the ratings specified above are deemed to be solicited DBRS Morningstar ratings.

The ratings assigned to certain securities may differ from the ratings implied by the quantitative model, but no such difference constitutes a material deviation. When assigning the ratings, DBRS Morningstar takes into account the rating analysis detailed in this press release and may have made qualitative adjustments for the analytical considerations not fully captured by the quantitative model.

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.

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

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