DBRS Morningstar Takes Rating Actions on 56 U.S. RMBS Transactions

DBRS, Inc. (DBRS Morningstar) reviewed 333 classes from 56 U.S. residential mortgage-backed security (RMBS) transactions. Of the 333 classes reviewed, DBRS Morningstar confirmed 293 ratings, downgraded eight ratings and removed them from Under Review with Negative Implications, and placed 32 ratings Under Review with Negative Implications.

The rating confirmations reflect asset performance and credit-support levels that are consistent with the current ratings. The rating downgrades reflect the unlikely recovery of the bonds’ principal loss amount or the transactions’ negative trend in loss activity. The Under Review with Negative Implications status reflects the negative impact of the coronavirus pandemic on the bonds. For certain bonds, DBRS Morningstar maintained the Under Review with Negative Implications status amid the uncertainty in such transactions’ performance with respect to forbearance and delinquency trends.

DBRS Morningstar’s rating actions are based on the following analytical considerations:

-- Key performance measures as reflected in month-over-month changes in delinquency (including forbearance) percentages, credit enhancement (CE) increases since deal inception, and CE levels relative to 30-day+ delinquencies.

-- Offset of mortgage-relief initiatives via direct-to-consumer economic aid, mortgage payment assistance, and foreclosure suspension directives.

-- Elevated economic concerns and more conservative home price assumptions.

As a result of the Coronavirus Disease (COVID-19) pandemic, 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 “DBRS Morningstar Releases Global Macroeconomic Scenarios: December Update” published on December 2, 2020), DBRS Morningstar applies 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 forecast unemployment rates and GDP growth outlined in the aforementioned moderate scenario.

The pools backing the reviewed RMBS transactions consist of non-Qualified Mortgage (non-QM) collateral.

NON-QM
In the non-QM asset class, DBRS Morningstar generally believes that loans originated to (1) borrowers with recent credit events, (2) self-employed borrowers, or (3) higher loan-to-value (LTV) borrowers may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with prior credit events have exhibited difficulties in fulfilling payment obligations in the past and may revert to spotty payment patterns in the near term. 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 may experience additional stress from extended lockdown periods and the slowdown of the economy.

The ratings assigned to the securities listed below differ from the ratings implied by the quantitative model. DBRS Morningstar considers this difference to be a material deviation; however, in this case, the ratings on the subject securities reflect actual deal/tranche performance that is not fully reflected in the projected cash flows/model output. Generally for RMBS transactions, the reporting of recent forbearance-related delinquencies (as opposed to nonforbearance-related delinquencies) in remittance reports has not been consistent and standardized. DBRS Morningstar believes that recent increases in delinquencies mostly reflect forbearances being requested and granted as a result of the coronavirus pandemic. Additionally, DBRS Morningstar believes that forbearance-related delinquencies, especially during the coronavirus pandemic, should have a lower probability of default than nonforbearance-related delinquencies. Because of the lack of standardized reporting, DBRS Morningstar may not be able to appropriately identify delinquencies as a result of forbearance in its loss analysis; thus, for certain transactions, DBRS Morningstar may have projected significantly higher expected losses using its quantitative model. After reviewing transaction-level performance trends and other analytical considerations outlined in this press release, however, DBRS Morningstar may assign ratings that differ from those implied by the quantitative model, thus resulting in a material deviation.

-- Angel Oak Mortgage Trust I, LLC 2017-1, Mortgage-Backed Certificates, Series 2017-1, Class B-1
-- Angel Oak Mortgage Trust I, LLC 2017-2, Mortgage-Backed Certificates, Series 2017-2, Class M-1
-- Angel Oak Mortgage Trust I, LLC 2017-2, Mortgage-Backed Certificates, Series 2017-2, Class B-2
-- Angel Oak Mortgage Trust I, LLC 2017-3, Mortgage-Backed Certificates, Series 2017-3, Class M-1
-- Angel Oak Mortgage Trust I, LLC 2017-3, Mortgage-Backed Certificates, Series 2017-3, Class B-1
-- Angel Oak Mortgage Trust I, LLC 2018-1, Mortgage-Backed Certificates, Series 2018-1, Class M-1
-- Angel Oak Mortgage Trust I, LLC 2018-2, Mortgage-Backed Certificates, Series 2018-2, Class A-3
-- Angel Oak Mortgage Trust I, LLC 2018-2, Mortgage-Backed Certificates, Series 2018-2, Class M-1
-- Angel Oak Mortgage Trust I, LLC 2018-3, Mortgage-Backed Certificates, Series 2018-3, Class A-3
-- Angel Oak Mortgage Trust I, LLC 2018-3, Mortgage-Backed Certificates, Series 2018-3, Class M-1
-- Angel Oak Mortgage Trust I, LLC 2018-3, Mortgage-Backed Certificates, Series 2018-3, Class B-2
-- Angel Oak Mortgage Trust I, LLC 2019-1, Mortgage-Backed Certificates, Series 2019-1, Class A-3
-- Angel Oak Mortgage Trust I 2019-2, Mortgage-Backed Certificates, Series 2019-2, Class A-3
-- Angel Oak Mortgage Trust 2019-3, Mortgage-Backed Certificates, Series 2019-3, Class A-3
-- Angel Oak Mortgage Trust 2019-4, Mortgage-Backed Certificates, Series 2019-4, Class B-2
-- Angel Oak Mortgage Trust 2019-5, Mortgage-Backed Certificates, Series 2019-5, Class B-2
-- Bunker Hill Loan Depositary Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class B-1
-- Bunker Hill Loan Depositary Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class B-2
-- Bunker Hill Loan Depositary Trust 2019-3, Mortgage-Backed Notes, Series 2019-3, Class A-2
-- COLT 2018-4 Mortgage Loan Trust, COLT 2018-4 Mortgage Pass-Through Certificates, Series 2018-4, Class A-3
-- COLT 2018-4 Mortgage Loan Trust, COLT 2018-4 Mortgage Pass-Through Certificates, Series 2018-4, Class M-1
-- COLT 2018-4 Mortgage Loan Trust, COLT 2018-4 Mortgage Pass-Through Certificates, Series 2018-4, Class M-2
-- COLT 2018-4 Mortgage Loan Trust, COLT 2018-4 Mortgage Pass-Through Certificates, Series 2018-4, Class B-1
-- COLT 2018-4 Mortgage Loan Trust, COLT 2018-4 Mortgage Pass-Through Certificates, Series 2018-4, Class B-2
-- COLT 2019-1 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-1, Class A-3
-- COLT 2019-1 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-1, Class M-1
-- COLT 2019-1 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-1, Class B-1
-- COLT 2019-1 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-1, Class B-2
-- COLT 2019-2 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-2, Class A-3
-- COLT 2019-3 Mortgage Loan Trust, Mortgage Pass-Through Certificates, Series 2019-3, Class A-3
-- Deephaven Residential Mortgage Trust 2017-3, Mortgage-Backed Notes, Series 2017-3, Class M-1
-- Deephaven Residential Mortgage Trust 2018-1, Mortgage-Backed Notes, Series 2018-1, Class M-1
-- Deephaven Residential Mortgage Trust 2018-3, Mortgage-Backed Notes, Series 2018-3, Class A-3
-- Deephaven Residential Mortgage Trust 2018-3, Mortgage-Backed Notes, Series 2018-3, Class M-1
-- Deephaven Residential Mortgage Trust 2018-3, Mortgage-Backed Notes, Series 2018-3, Class B-2
-- Deephaven Residential Mortgage Trust 2018-4, Mortgage-Backed Notes, Series 2018-4, Class A-3
-- Deephaven Residential Mortgage Trust 2018-4, Mortgage-Backed Notes, Series 2018-4, Class B-2
-- Deephaven Residential Mortgage Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class A-3
-- Deephaven Residential Mortgage Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class M-1
-- Deephaven Residential Mortgage Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class B-2
-- Deephaven Residential Mortgage Trust 2019-2, Mortgage-Backed Notes, Series 2019-2, Class A-3
-- Deephaven Residential Mortgage Trust 2019-2, Mortgage-Backed Notes, Series 2019-2, Class B-2
-- Ellington Financial Mortgage Trust 2019-1, Mortgage Pass-Through Certificates, Series 2019-1, Class A-3
-- GCAT 2019-NQM1 Trust, Mortgage Pass-Through Certificates, Series 2019-NQM1, Class A-3
-- GCAT 2019-NQM1 Trust, Mortgage Pass-Through Certificates, Series 2019-NQM1, Class M-1
-- Homeward Opportunities Fund I Trust 2019-1, Mortgage Pass-Through Certificates, Series 2019-1, Class B-1
-- Homeward Opportunities Fund I Trust 2019-1, Mortgage Pass-Through Certificates, Series 2019-1, Class B-2
-- Homeward Opportunities Fund I Trust 2019-3, Mortgage Pass-Through Certificates, Series 2019-3, Class B-2
-- New Residential Mortgage Loan Trust 2019-NQM1, Mortgage-Backed Notes, Series 2019-NQM1, Class A-3
-- New Residential Mortgage Loan Trust 2019-NQM1, Mortgage-Backed Notes, Series 2019-NQM1, Class M-1
-- New Residential Mortgage Loan Trust 2019-NQM1, Mortgage-Backed Notes, Series 2019-NQM1, Class B-1
-- New Residential Mortgage Loan Trust 2019-NQM1, Mortgage-Backed Notes, Series 2019-NQM1, Class B-2
-- New Residential Mortgage Loan Trust 2019-NQM2, Mortgage-Backed Notes, Series 2019-NQM2, Class B-1
-- New Residential Mortgage Loan Trust 2019-NQM2, Mortgage-Backed Notes, Series 2019-NQM2, Class B-2
-- New Residential Mortgage Loan Trust 2019-NQM5, Mortgage-Backed Notes, Series 2019-NQM5, Class B-1
-- New Residential Mortgage Loan Trust 2019-NQM5, Mortgage-Backed Notes, Series 2019-NQM5, Class B-2
-- RCO 2017-INV1 Trust, Mortgage-Backed Notes, Series 2017-INV1, Class M-1
-- Residential Mortgage Loan Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class A-3
-- Residential Mortgage Loan Trust 2019-1, Mortgage-Backed Notes, Series 2019-1, Class M-1
-- Residential Mortgage Loan Trust 2019-2, Mortgage-Backed Notes, Series 2019-2, Class A-3
-- Residential Mortgage Loan Trust 2019-3, Mortgage-Backed Notes, Series 2019-3, Class A-3
-- Spruce Hill Mortgage Loan Trust 2019-SH1, Mortgage-Backed Notes, Series 2019-SH1, Class A-3
-- Spruce Hill Mortgage Loan Trust 2019-SH1, Mortgage-Backed Notes, Series 2019-SH1, Class M-1
-- Starwood Mortgage Residential Trust 2019-INV1, Mortgage Pass-Through Certificates, Series 2019-INV1, Class A-2
-- Starwood Mortgage Residential Trust 2019-INV1, Mortgage Pass-Through Certificates, Series 2019-INV1, Class A-3
-- Starwood Mortgage Residential Trust 2019-INV1, Mortgage Pass-Through Certificates, Series 2019-INV1, Class M-1
-- Starwood Mortgage Residential Trust 2019-INV1, Mortgage Pass-Through Certificates, Series 2019-INV1, Class B-1
-- Verus Securitization Trust 2018-2, Mortgage Pass-Through Certificates, Series 2018-2, Class B-1
-- Verus Securitization Trust 2018-2, Mortgage Pass-Through Certificates, Series 2018-2, Class B-3
-- Verus Securitization Trust 2018-3, Mortgage Pass-Through Certificates, Series 2018-3, Class B-2
-- Verus Securitization Trust 2019-2, Mortgage Pass-Through Certificates, Series 2019-2, Class B-2
-- Verus Securitization Trust 2019-INV1, Mortgage Pass-Through Certificates, Series 2019-INV1, Class B-2
-- Verus Securitization Trust 2019-INV2, Mortgage Pass-Through Certificates, Series 2019-INV2, Class B-2

The rating actions are the result of DBRS Morningstar’s application of its “U.S. RMBS Surveillance Methodology,” published on February 21, 2020.

When DBRS Morningstar places a rating Under Review with Negative Implications, DBRS Morningstar seeks to complete its assessment and remove the rating from this status as soon as appropriate. Upon the resolution of the Under Review status, DBRS Morningstar may confirm or downgrade the ratings on the affected classes.

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:
The principal methodologies are the U.S. RMBS Surveillance Methodology (February 21, 2020) and 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.

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

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