DBRS Morningstar Finalizes its Provisional Ratings on Galton Funding Mortgage Trust 2020-H1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Mortgage Pass-Through Certificates, Series 2020-H1 (the Certificates) issued by Galton Funding Mortgage Trust 2020-H1 (GFMT 2020-H1 or the Issuer) as follows:

-- $189.3 million Class A1 at AAA (sf)
-- $13.9 million Class A2 at AA (high) (sf)
-- $20.7 million Class A3 at A (low) (sf)
-- $10.1 million Class M1 at BBB (low) (sf)
-- $6.3 million Class B1 at BB (low) (sf)
-- $3.7 million Class B2 at B (sf)

The AAA (sf) rating on Class A1 reflects 22.85% of credit enhancement provided by subordinated notes in the pool. The AA (high) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 17.20%, 8.75%, 4.65%, 2.10%, and 0.60% of credit enhancement, respectively.

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

The Certificates are backed by 316 loans with a total principal balance of $245,399,156 as of the Cut-Off Date. The mortgage loans were acquired by Galton Mortgage Acquisition Platform IV H Sponsor LLC (the Sponsor). The Sponsor selected the mortgage loans from a pool of loans originated via the Galton Funding (Galton) Platform and held by acquisition trusts that meet the Galton acquisition criteria.

GFMT 2020-H1 is Galton’s second securitization that comprises a targeted mortgage loan collateral pool generally based on the interest rate of the loans. The pool’s weighted-average coupon (WAC) is 5.282% and the loans have rates that are generally 1.29% or more above market mortgage rates as measured by the Freddie Mac Primary Mortgage Market Survey. The pool’s WAC is higher than Galton’s prior shifting-interest securitizations and, as a result, this transaction employs a cash flow structure that is similar to Galton’s previous high coupon securitization (GFMT 2019-H1) and many non-Qualified Mortgage (QM) securitizations. The transaction contains 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 Certificates that have principal payment priority in a given period. Furthermore, excess spread will be used to cover losses in the current period or those allocated in prior periods.

Similar to the prior four Galton securitizations, this transaction incorporates a unique feature in the calculation of interest entitlements of the Certificates. The interest entitlements, through the calculation of the Net WAC Rate, are reduced by the delinquent interest that would have accrued on the stop advance loans (i.e., loans that become 120 or more days delinquent or loans for which the Servicer determines that the principal and interest (P&I) advance would not be recoverable). In other words, investors are not entitled to any interest on such severely delinquent mortgages unless such interest amounts are recovered. The delinquent interest recovery amounts, if any, will be distributed sequentially to the P&I certificates.

The originators for the mortgage pool are JMAC Lending, Inc. (21.3%); LendUS, LLC (10.5%); Parkside Lending, LLC (9.8%); loanDepot.com, LLC (8.4%); Guaranteed Rate, Inc. (5.1%); and various other originators, each comprising less than 5.0% of the mortgage loans.

The mortgages were generally originated pursuant to underwriting standards that conform to Galton’s acquisition criteria. Galton has established product matrices for different loan programs. The majority of the loans in this securitization (96.4%) are prime borrowers (Galton’s Jumbo, Prime, and Streamlined First Lien Programs) with unblemished credit who may not meet prime jumbo or agency/government guidelines.

Although the mortgage loans were originated to satisfy the Consumer Financial Protection Bureau’s (CFPB) ability-to-repay rules, they were made to borrowers who generally do not qualify for agency, government, or private-label non-agency prime jumbo products for various reasons as described above. In accordance with the CFPB QM rules, 3.6% of the loans are designated as QM Safe Harbor, 3.6% as QM Rebuttable Presumption, and 62.6% as non-QM. Approximately 30.2% of the loans are not subject to the QM rules.

Galton Mortgage Loan Seller LLC (the Servicing Administrator and the Seller) will generally fund advances (to the extent that the available aggregate servicing rights strip has first been reduced to zero to fund such amounts) of delinquent P&I on any mortgage until such loan becomes 120 days delinquent or until the Servicer determines that an advance is not recoverable and is obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties.

The Sponsor intends to retain 5% of the fair value of all Certificates issued by the Issuer (other than the residual certificates) to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The Seller and the Sponsor 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 delinquency method until the date on which the Representations and Warranties Enforcement Party delivers the enforcement initiation report, provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Sponsor has the option to trigger an optional redemption of all the outstanding certificates on the fourth anniversary of the closing date or on any date thereafter.

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].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA