DBRS Morningstar Finalizes Provisional Ratings on MetLife Securitization Trust 2020-INV1

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Residential Mortgage-Backed Securities, Series 2020-INV1 (the Securities) issued by MetLife Securitization Trust 2020-INV1:

-- $273.5 million Class A-1 at AAA (sf)
-- $273.5 million Class A-1-A at AAA (sf)
-- $273.5 million Class A-1-X at AAA (sf)
-- $255.5 million Class A-2 at AAA (sf)
-- $255.5 million Class A-2-A at AAA (sf)
-- $255.5 million Class A-2-X at AAA (sf)
-- $166.1 million Class A-3 at AAA (sf)
-- $166.1 million Class A-3-A at AAA (sf)
-- $166.1 million Class A-3-X at AAA (sf)
-- $89.4 million Class A-4 at AAA (sf)
-- $89.4 million Class A-4-A at AAA (sf)
-- $89.4 million Class A-4-X at AAA (sf)
-- $18.0 million Class A-5 at AAA (sf)
-- $18.0 million Class A-5-A at AAA (sf)
-- $18.0 million Class A-5-X at AAA (sf)
-- $8.3 million Class B-1 at AA (sf)
-- $5.9 million Class B-2 at A (sf)
-- $6.3 million Class B-3 at BBB (sf)
-- $3.5 million Class B-4 at BB (sf)
-- $1.7 million Class B-5 at B (low) (sf)

Classes A-1-X, A-2-X, A-3-X, A-4-X, and A-5-X are interest-only notes. The class balances represent notional amounts.

Classes A-1, A-1-A, A-1-X, A-2, A-2-A, A-2-X, A-3, A-4, and A-5 are exchangeable notes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

Classes A-2, A-2-A, A-3, A-3-A, A-4, and A-4-A are super senior notes. These classes benefit from additional protection from the senior support notes (Classes A-5 and A-5-A) with respect to loss allocation.

The AAA (sf) rating on the Notes reflects 9.00% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (low) (sf) ratings reflect 6.25%, 4.30%, 2.20%, 1.05%, and 0.50% of credit enhancement, respectively.

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

This securitization is a portfolio of first-lien, fixed-rate investment-property residential mortgages funded by the issuance of the Securities. The Securities are backed by 994 loans with a total principal balance of $300,568,294 as of the Cut-Off Date (November 1, 2020).

This securitization is Metropolitan Life Insurance Company's (MLIC) first 100% prime investor transaction. Since 2017, MLIC has issued three DBRS Morningstar-rated seasoned reperforming securitizations.

The entire pool consists of fully amortizing fixed-rate mortgages (FRMs) with original terms to maturity of 30 years. The loans were made to investors primarily for business purposes; however, 26.4% of the loans were subject to a cash-out refinancing and may have been used by the borrower for personal use. Based on third party due diligence designations, 90.7% of the pool was not subject to the Qualified Mortgage (QM) and Ability-to-Repay (ATR) rules (together, the Rules). The rest of the pool (9.3%) was categorized as Safe Harbor which mitigates future litigation risk and provides a level of assurance that these loans are better insulated from claims and defenses by borrowers. In addition, 18 borrowers have multiple mortgages (41 loans in total, 4.0% of the pool) included in the securitized portfolio. Most of the mortgage loans (98.1% of the pool) in the portfolio were eligible for purchase by Fannie Mae or Freddie Mac (conforming mortgages).

Prior to the Closing Date, Metropolitan Life Insurance Company (MLIC), as Sponsor and Seller, acquired the loans from Bayview Dispositions V, LLC; Oceanview Dispositions, LLC; and Lakeview Loan Servicing, LLC, each of which acquired the loans from various unaffiliated third-party originators.

Community Loan Servicing, LLC f/k/a Bayview Loan Servicing (CLS) will act as the Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will act as Trust Administrator. Wilmington Savings Fund Society, FSB will act as Delaware Trustee and Indenture Trustee. Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Negative trend by DBRS Morningstar) will act as Custodian.

MLIC, as Sponsor, intends to retain (directly or through a majority-owned affiliate) a vertical interest in 5% of each class of Securities (other than the Class R Certificates) to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

Unlike other prime securitizations rated by DBRS Morningstar, the Servicer will not advance delinquent principal and interest (P&I) on any mortgage; however, the Servicer is obligated to make certain advances in respect of homeowner association fees, taxes, and insurance; and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

This transaction also incorporates a unique feature for the treatment of delinquent interest and the calculation of interest entitlements of the securities. Delinquent interest will first reduce the interest entitlement to the Class X Notes. Then, the interest entitlements to the securities, through the application of a capped coupon rate, are reduced by the delinquent interest that would have accrued on the related loans, reverse sequentially. In other words, investors are not entitled to any interest on such delinquent mortgages, unless such interest amounts are recovered. The delinquent interest recovery amounts, if any, will be distributed sequentially to the P&I securities.

The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a pre-crisis structure.

As of the Cut-Off Date, no borrower within the pool has entered into a Coronavirus Disease (COVID-19)-related forbearance plan with a servicer. In the event that a borrower requests or enters into a coronavirus-related forbearance plan after the Cut-Off Date but prior to the Closing Date, the Seller will remove such loan from the mortgage pool. Loans that enter a coronavirus-related forbearance plan after the Closing Date will remain in the pool.

CORONAVIRUS PANDEMIC IMPACT

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 residential mortgage-backed security (RMBS) asset classes, some meaningfully.

The prime mortgage sector is a traditional RMBS asset class that consists of securitizations backed by pools of residential home loans originated to borrowers with prime credit. Generally, these borrowers have decent FICO scores, reasonable equity, and robust income and liquid reserves.

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: September Update,” published on September 10, 2020), for the prime asset class, DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than it previously used. DBRS Morningstar derived such MVD assumptions through a fundamental home price approach based on the forecast 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.

In the prime asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes that this sector should have low intrinsic credit risk. Within the prime asset class, loans originated to (1) self-employed borrowers or (2) higher loan-to-value (LTV) ratio borrowers may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Self-employed borrowers are potentially exposed to more volatile income sources, which could lead to reduced cash flows generated from their businesses. Higher LTV borrowers, with lower equity in their properties, generally have fewer refinance opportunities and therefore slower prepayments. In addition, certain pools with elevated geographic concentrations in densely populated urban metropolitan statistical areas (MSAs) may experience additional stress from extended lockdown periods and the slowdown of the economy.

Although no loan in the pool has been on a forbearance plan because of financial hardship related to the coronavirus, for this deal, DBRS Morningstar applied additional assumptions to evaluate the impact of potential cash flow disruptions on the rated tranches, stemming from (1) lower P&I collections and (2) no servicing advances on delinquent P&I. These assumptions include:

1. Increasing delinquencies for the AAA (sf) and AA (sf) rating levels for the first 12 months,
2. Increasing delinquencies for the A (sf) and below rating levels for the first nine months,
3. Applying no voluntary prepayments for the AAA (sf) and AA (sf) rating levels for the first 12 months, and
4. Delaying the receipt of liquidation proceeds for the AAA (sf) and AA (sf) rating levels for the first 12 months.

The ratings reflect transactional strengths that include high-quality credit attributes, well-qualified borrowers, a satisfactory third-party due diligence review, structural enhancements, and 100% current loans.

The ratings reflect transactional challenges that include no servicer advances of delinquent P&I, 100% investor properties, multiple loans from the same borrowers in the securitized pool, and a R&W framework that incorporates sunset provisions that allow for certain R&Ws to expire within three to six years after the Closing Date.

The full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.

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.
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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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