DBRS Morningstar Assigns New Ratings to Legacy Mortgage Asset Trust 2020-RPL1

DBRS, Inc. (DBRS Morningstar) assigned new ratings to the following Mortgaged-Backed Notes, Series 2020-RPL1 (the Notes) issued by Legacy Mortgage Asset Trust 2020-RPL1 (LMAT 2020-RPL1 or the Trust):

-- $279.9 million Class A-1 Notes at AAA (sf)
-- $31.0 million Class A-2 Notes at AA (sf)
-- $310.8 million Class A-3 Notes at AA (sf)
-- $332.6 million Class A-4 Notes at A (sf)
-- $355.3 million Class A-5 Notes at BBB (sf)
-- $21.8 million Class M-1 Notes at A (sf)
-- $22.7 million Class M-2 Notes at BBB (sf)
-- $14.2 million Class B-1 Notes at BB (sf)
-- $14.0 million Class B-2 Notes at B (sf)

The Class A-3, A-4, and A-5 Notes are exchangeable. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect 39.00% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 32.25%, 27.50%, 22.55%, 19.45%, and 16.40% 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 seasoned performing and reperforming, primarily first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 2,368 loans with a total principal balance of $482,940,786 as of the Cut-Off Date (February 29, 2020).

The portfolio is approximately 158 months seasoned and contains 94.4% modified loans. The modifications happened more than two years ago for 79.7% of the modified loans. Within the pool, 859 mortgages have non-interest-bearing deferred amounts, which equate to approximately 9.4% of the total principal balance. There are no Home Affordable Modification Program and proprietary principal forgiveness amounts included in the deferred amounts.

As of the Cut-Off Date, 95.6% of the loans in the pool are current. Approximately 3.3% is 30 days delinquent, 0.1% is 60 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 1.0% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 62.2% of the mortgage loans have been zero times 30 days delinquent for at least the past 24 months under the MBA delinquency method.

The majority of the pool (99.1%) 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 (0.7%) and Non-QM (0.2%).

The Mortgage Loan Sellers, Goldman Sachs Mortgage Company (GSMC; 82.8% of the loans) and MTGLQ Investors, L.P. (17.2% of the loans), acquired the mortgage loans in various transactions prior to the Closing Date from various mortgage loan sellers or from an affiliate, GS Mortgage Securities Corp., which will contribute the loans to the Trust. As the Sponsor, GSMC, or a majority-owned affiliate, will retain an eligible vertical interest in the transaction consisting of an uncertificated interest (the Retained Interest) in the Trust representing the right to receive at least 5.0% of the amounts collected on the mortgage loans, net of the Trust’s fees, expenses, and reimbursements and paid on the Notes (other than the Class R Notes) and the Retained Interest to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. These loans were originated and previously serviced by various entities through purchases in the secondary market.

The loans will be serviced by Rushmore Loan Management Services LLC (53.8%) and Select Portfolio Servicing, Inc. (46.2%). The initial aggregate servicing fee for the LMAT 2020-RPL1 portfolio will be 0.25% per annum.

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 to the preservation, inspection, restoration, protection, and repair of a mortgaged property, which includes delinquent tax and insurance payments, the enforcement or judicial proceedings associated with a mortgage loan, and the management and liquidation of properties (to the extent that the Servicers deem such advances to be recoverable).

When the aggregate pool balance of the mortgage loans is reduced to less than 25% of the Cut-Off Date balance, the Controlling Holder will have the option to purchase all remaining loans at a specified minimum price.

As a loss mitigation alternative, the Servicers may sell mortgage loans that are in early-stage or advanced default to maximize proceeds on such defaulted loans on a net present value basis.

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 the Class M-1 Notes and more subordinate bonds will not be paid from principal proceeds until the more senior classes are retired.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many residential mortgage-backed security (RMBS) asset classes, some meaningfully.

RPL is a traditional RMBS asset class that consists of securitizations backed by pools of seasoned performing and re-performing residential home loans. Although borrowers in these pools may have experienced delinquencies in the past, the loans have been largely performing for the past six to 24 months since issuance. Generally, these pools are highly seasoned and contain sizable concentrations of previously modified loans.

As a result of the coronavirus, DBRS Morningstar expects increased delinquencies and loans on forbearance plans, slower voluntary prepayment rates, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely impact borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loan.

In conjunction with its commentary, “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, DBRS Morningstar updated its baseline stresses (baseline coronavirus stress) for the RPL asset class that correspond to the moderate macroeconomic scenario outlined in the commentary. The baseline coronavirus stresses include a combination of increased unemployment rates, lower voluntary prepayment rates, and more conservative home price assumptions from the stresses DBRS Morningstar previously used.

In the RPL asset class, while the full effect of the coronavirus may not be seen until a few performance cycles later, DBRS Morningstar generally believes that loans which were previously delinquent, recently modified, or have higher updated loan-to-value ratios (LTVs) may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with previous delinquencies or recent modifications have exhibited difficulty in fulfilling payment obligations in the past and may revert back to spotty payment patterns in the near term. Higher LTV borrowers with lower equity in their properties generally have fewer refinance opportunities and, therefore, slower prepayments.

When applied to LMAT 2020-RPL1, the baseline coronavirus stresses resulted in higher expected losses on the collateral pool and correspondingly higher credit enhancement compared with the assumptions DBRS Morningstar previously used.

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 Notes. The DBRS Morningstar ratings of A (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 are detailed in the related rating report.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 (April 1, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.dbrsmorningstar.com or contact us at [email protected].

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