DBRS Morningstar Assigns Ratings to Towd Point Mortgage Trust 2019-MH1

DBRS, Inc. (DBRS Morningstar) assigned ratings to the following Asset-Backed Securities, Series 2019-MH1 (the Notes) issued by Towd Point Mortgage Trust 2019-MH1 (TPMT 2019-MH1):

-- $257.4 million Class A1 at AAA (sf)
-- $32.0 million Class A2 at AA (high) (sf)
-- $29.0 million Class M1 at A (sf)
-- $24.4 million Class M2 at BBB (sf)
-- $26.9 million Class B1 at BB (sf)
-- $15.2 million Class B2 at B (sf)
-- $21.4 million Class B3 at B (low) (sf)
-- $257.4 million Class A1A at AAA (sf)
-- $257.4 million Class A1AX at AAA (sf)
-- $32.0 million Class A2A at AA (high) (sf)
-- $32.0 million Class A2AX at AA (high) (sf)
-- $32.0 million Class A2B at AA (high) (sf)
-- $32.0million Class A2BX at AA (high) (sf)
-- $29.0 million Class M1A at A (sf)
-- $29.0 million Class M1AX at A (sf)
-- $29.0 million Class M1B at A (sf)
-- $29.0 million Class M1BX at A (sf)
-- $33.3 million Class M2A at BBB (sf)
-- $33.3 million Class M2AX at BBB (sf)
-- $33.3 million Class M2B at BBB (sf)
-- $33.3 million Class M2BX at BBB (sf)
-- $26.9 million Class B1A at BB (sf)
-- $26.9 million Class B1AX at BB (sf)
-- $26.9 million Class B1B at BB (sf)
-- $26.9 million Class B1BX at BB (sf)
-- $15.2 million Class B2A at B (sf)
-- $15.2 million Class B2AX at B (sf)
-- $15.2 million Class B2B at B (sf)
-- $15.2 million Class B2BX at B (sf)
-- $21.4 million Class B3A at B (low) (sf)
-- $21.4 million Class B3AX at B (low) (sf)
-- $21.4 million Class B3B at B (low) (sf)
-- $21.4 million Class B3BX at B (low) (sf)
-- $289.4 million Class A3 at AA (high) (sf)
-- $318.4 million Class A4 at A (sf)
-- $342.8 million Class A5 at BBB (sf)

Classes A1AX, A2AX, A2BX, M1AX, M1BX, M2AX, M2BX, B1AX, B1BX, B2AX, B2BX, B3AX, and B3BX are interest-only notes. The class balances represent notional amounts.

Classes A3, A4, A5, A1A, A1AX, A2A, A2AX, A2B, A2BX, M1A, M1AX, M1B, M1BX, M2A, M2AX, M2B, M2BX, B1A, B1AX, B1B, B1BX, B2A, B2AX, B2B, B2BX, B3A, B3AX, B3B, and B3BX 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 42.64% of credit enhancement provided by subordinated certificates. The AA (high) (sf), A (sf), BBB (sf), BB (sf), B (sf), and B (low) (sf) ratings reflect 35.51%, 29.06%, 23.63%, 17.63%, 14.24%, and 9.48% of credit enhancement, respectively, as of May 25, 2020.

These securities are currently also rated by DBRS, Inc.’s 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 June 26, 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.

The TPMT 2019-MH1 transaction is classified as a seasoned manufactured housing transaction.

DBRS Morningstar performed the following rating analysis on the transaction:

-- Loan-level default probability, loss severity, and expected loss review;
-- Cash flow analysis to evaluate the form and sufficiency of available credit enhancement;
-- Historical performance analysis as reflected in delinquencies, cumulative losses, and constant prepayment rates;
-- Third-party due diligence sample size review; and
-- Representations and warranties (R&W) framework review.

POOL EXPECTED LOSSES
DBRS Morningstar used its proprietary RMBS Insight 1.3 model to derive probabilities of default (PODs), loss severities, and expected losses for this transaction. DBRS Morningstar recalculated or remapped certain collateral attributes in its analysis. The PODs, loss severities, and expected losses for the transaction are generally stepped up from the raw model results.

CASH FLOW ANALYSIS
DBRS Morningstar performed a structural analysis that encompassed 18 cash flow stress, which focused on prepayment speeds, timing of losses, and interest rate stresses.

OPERATIONAL RISK REVIEW
Given the significant seasoning of the loans, DBRS Morningstar did not perform originator reviews to evaluate the TPMT 2019-MH1 pool. In accordance with its residential mortgage-backed security (RMBS) rating methodology, for seasoned transactions, DBRS Morningstar generally does not conduct an originator review as DBRS Morningstar believes that the performance history of the loans is more indicative of credit risk than the dated origination and underwriting practices. Moreover, some of the originators active from the pre-crisis era may have exited the business and those who continue to originate may have significantly changed their practices and controls over time. DBRS Morningstar believes that origination risks should have manifested in deal performance over time and are therefore captured through the seasoned characteristics in its RMBS Insight model.

Southwest Stage Funding, LLC, doing business as Cascade Financial Services (Cascade or the Company), is the servicer of 100% of the loans in this transaction. DBRS Morningstar performed a phone review of Cascade’s servicing platform and believes the Company is an acceptable mortgage loan servicer. The transaction also benefits from Select Portfolio Servicing, Inc. as the backup servicer.

HISTORICAL PERFORMANCE
DBRS Morningstar reviewed the historical performance of the transaction as reflected in delinquencies, cumulative losses, and voluntary prepayments. The transaction’s performance has remained satisfactory as credit enhancement levels have increased for all rated bonds while voluntary prepayment rates have remained steady, serious delinquency rates have remained stable, and realized losses have been contained at about 1.02% of the original balance as of May 25, 2020.

THIRD-PARTY DUE DILIGENCE
DBRS Morningstar reviewed the sample size for each of the due diligence review categories, including regulatory compliance, data capture, payment histories, and title and tax review. The sample sizes in the transactions met DBRS Morningstar’s due diligence criteria. DBRS Morningstar did not review the loan-level due diligence findings for the transaction; rather, it relied on the analysis MCR performed when it initially assigned ratings to the transactions on or prior to the closing date as well as the transaction’s satisfactory performance to date.

R&W FRAMEWORK
The transaction employs a relatively weak R&W framework that includes an unrated representation provider (FirstKey Mortgage, LLC or FirstKey), a trigger review event that may result in the review of potential breaches of R&Ws at a much later date, certain knowledge qualifiers, certain carveouts, and fewer mortgage loan representations relative to DBRS Morningstar criteria for seasoned pools. Also, the R&W provider is not obligated to cure or repurchase a loan if the breach notice is provided on or after the Sunset Date, which is the payment date in October 2020. Mitigating factors include the following:
-- The portfolio has had significant loan seasoning and a relatively clean performance history in the recent past.
-- Third-party due diligence was performed on a sample of the portfolio that meets the DBRS Morningstar threshold outlined in its criteria with respect to regulatory compliance, data capture, payment histories, and title and tax review.
-- A breach reserve account will be available to satisfy losses related to potential R&W breaches on or after the R&W Sunset Date, or if FirstKey becomes insolvent or fails to fulfill its obligations to remedy a breach prior to the R&W Sunset Date. Such reserve account will gradually build up to a target amount using excess servicing amounts otherwise payable to Class XS2.
-- The transaction includes the loan charge-off provision, which hastens the loss recognition and might accelerate the occurrence of the R&W breach reviews by advancing the Threshold Event, which is the first payment date when, the sum of cumulative realized losses exceeds the of aggregate note amount of Class B-3, B-4, and B-5 Notes on the closing date.
-- The holders of 50% or more of the Notes can put forth a R&W breach review prior to a Threshold Event. Disputes are ultimately subject to determination made in a related binding arbitration proceeding.

OTHER REVIEWS
DBRS Morningstar notes that MCR performed legal analysis, which included but was not limited to legal opinions and various transaction documents, as part of its process of assigning ratings to this 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.

CORONAVIRUS DISEASE (COVID-19) ANALYSIS
The coronavirus pandemic 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 continue to rise in the coming months for many RMBS asset classes, some meaningfully.

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

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: June Update,” published on June 1, 2020), for this transaction, DBRS Morningstar applied more severe market value decline (MVD) assumptions across all rating categories than what it previously used. DBRS Morningstar derives such MVD assumptions through a fundamental home price approach based on the forecasted unemployment rates and GDP growth outlined in the aforementioned moderate scenario. In addition, for pools with loans on forbearance plans, DBRS Morningstar may assume higher loss expectations above and beyond the coronavirus assumptions. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

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 on April 1, 2020, 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 securities. For all other ratings, DBRS Morningstar’s ratings 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 securities.

The ratings DBRS Morningstar 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 that are not fully captured by the quantitative model.

ESG CONSIDERATIONS
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 the 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.

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

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