DBRS Morningstar Assigns Provisional Ratings to Towd Point Mortgage Trust 2020-1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Asset-Backed Securities, Series 2020-1 (the Notes) to be issued by Towd Point Mortgage Trust 2020-1 (TPMT 2020-1 or the Trust) as follows:

-- $440.3 million Class A1A1 at AAA (sf)
-- $77.7 million Class A1A2 at AAA (sf)
-- $59.7 million Class A2A at AAA (sf)
-- $25.0 million Class A2B at AA (low) (sf)
-- $24.2 million Class M1 at A (sf)
-- $26.5 million Class M2 at BBB (sf)
-- $12.9 million Class B1A at BB (sf)
-- $12.9 million Class B1B at BB (sf)
-- $13.6 million Class B2A at B (sf)
-- $13.6 million Class B2B at B (sf)
-- $518.0 million Class A1 at AAA (sf)
-- $518.0 million Class A1X at AAA (sf)
-- $440.3 million Class A1A at AAA (sf)
-- $440.3 million Class A1AX at AAA (sf)
-- $77.7 million Class A1B at AAA (sf)
-- $77.7 million Class A1BX at AAA (sf)
-- $59.7 million Class A2C at AAA (sf)
-- $59.7 million Class A2CX at AAA (sf)
-- $59.7 million Class A2D at AAA (sf)
-- $59.7 million Class A2DX at AAA (sf)
-- $25.0 million Class A2E at AA (low) (sf)
-- $25.0 million Class A2EX at AA (low) (sf)
-- $25.0 million Class A2F at AA (low) (sf)
-- $25.0 million Class A2FX at AA (low) (sf)
-- $577.8 million Class A3 at AAA (sf)
-- $602.7 million Class A4 at AA (low) (sf)
-- $626.9 million Class A5 at A (sf)
-- $24.2 million Class M1A at A (sf)
-- $24.2 million Class M1AX at A (sf)
-- $24.2 million Class M1B at A (sf)
-- $24.2 million Class M1BX at A (sf)
-- $26.5 million Class M2A at BBB (sf)
-- $26.5 million Class M2AX at BBB (sf)
-- $26.5 million Class M2B at BBB (sf)
-- $26.5 million Class M2BX at BBB (sf)
-- $25.7 million Class B1 at BB (sf)
-- $12.9 million Class B1C at BB (sf)
-- $12.9 million Class B1CX at BB (sf)
-- $12.9 million Class B1D at BB (sf)
-- $12.9 million Class B1DX at BB (sf)
-- $12.9 million Class B1E at BB (sf)
-- $12.9 million Class B1EX at BB (sf)
-- $12.9 million Class B1F at BB (sf)
-- $12.9 million Class B1FX at BB (sf)
-- $27.2 million Class B2 at B (sf)

Classes A1X, A1AX, A1BX, A2CX, A2DX, A2EX, A2FX, M1AX, M1BX, M2AX, M2BX, B1CX, B1DX, B1EX, and B1FX are interest-only notes. The class balances represent a notional amount.

Classes A1, A1A, A1AX, A1B, A1BX, A2C, A2CX, A2D, A2DX, A2E, A2EX, A2F, A2FX, A3, A4, A5, M1A, M1AX, M1B, M1BX, M2A, M2AX, M2B, M2BX, B1, B1C, B1CX, B1D, B1DX, and B2 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect 23.60% of credit enhancement provided by subordinated certificates in the pool. The AA (low) (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 20.30%, 17.10%, 13.60%, 11.90%, and 6.60% of credit enhancement, respectively.

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 reperforming primarily first-lien mortgages funded by the issuance of the Notes. The Notes are backed by 5,078 loans with a total principal balance of $756,264,221 as of the Cut-Off Date (December 31, 2019).

The Notes are backed by 5,166 loans with a total principal balance of $771,742,925 as of the Statistical Calculation Date (November 30, 2019). Unless specified otherwise, all the statistics regarding the mortgage loans in this report are based on the Statistical Calculation Date.

The portfolio is approximately 136 months seasoned, and of the loans, 64.2% are modified. The modifications happened more than two years ago for 84.0% of the modified loans. Within the pool, 750 mortgages have non-interest-bearing deferred amounts, which equate to approximately 4.0% of the total principal balance. Included in the deferred amounts are Home Affordable Modification Program and proprietary principal forgiveness amounts, which together comprise 0.1% of the total principal balance.

As of the Statistical Calculation Date, 94.7% of the pool is current, 3.5% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 1.9% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent).

Approximately 64.2% of the mortgage loans have been zero times 30 days delinquent (0 x 30) for at least the past 24 months under the MBA delinquency method. The majority of the pool (88.3%) is exempt from the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. The loans subject to the ATR rules are designated as QM Safe Harbor (10.4%), QM Rebuttable Presumption (0.7%), and Non-QM (0.6%).

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 2013 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. (91.9%) and Specialized Loan Servicing LLC (8.1%). The initial aggregate servicing fee for the TPMT 2020-1 portfolio will be 0.1706% per annum, lower than transactions backed by similar collateral. DBRS Morningstar stressed such servicing expenses in its cash flow analysis to account for a potential fee increase in a distressed scenario.

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 nonperforming 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) 56.15% 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 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 TPMT 2020-1 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 meets a minimum price.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-Off Date, the majority representative, as appointed by the holder(s) of more than 50% of the notional amount of the Class X Certificates or their affiliates, may purchase all of the mortgage loans, REO properties, and other properties from TPMT 2020-1 so 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 A2B and more subordinate bonds will not be paid from principal proceeds until Class A1A1, A1A2, and A2A are retired.

The DBRS Morningstar ratings of AAA (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 DBRS Morningstar ratings of AA (low) (sf), BBB (sf), BB (sf), and B (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 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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