DBRS Morningstar Places Ratings of NRZ MSR-Collateralized Notes, Series 2018-FNT1 and 2018-FNT2 URP

DBRS, Inc. (DBRS Morningstar) has placed the ratings of NRZ MSR-Collateralized Notes, Series 2018-FNT1 and NRZ MSR-Collateralized Notes, Series 2018-FNT2 (the Notes) issued jointly by New Residential Mortgage LLC and MSR WAC LLC Under Review with Positive Implications.

KEY RATING CONSIDERATIONS
The Under Review with Positive Implications on the NRZ MSR-Collateralized Notes Series 2018-FNT1 and NRZ MSR-Collateralized Notes, Series 2018-FNT2 (together the Notes) reflects DBRS Morningstar’s placement of the Long-Term Issuer Rating of New Residential Investment Corp. (NRZ or the Company) Under Review with Positive Implications following the Company’s announcement that it has entered into a definitive agreement to acquire Caliber Home Loans, Inc. (please see the DBRS Morningstar press release: DBRS Morningstar Places NRZ UR - Positive Following Agreement to Acquire Caliber Home Loans, April 22, 2021, for further information): https://www.dbrsmorningstar.com/research/377294/dbrs-morningstar-places-nrz-ur-positive-following-agreement-to-acquire-caliber-home-loans

Given that the ratings of the Notes benefit from a guarantee provided by the Company and the ultimate recourse to NRZ, the ratings of the Notes are inherently linked to that of NRZ, and will move in tandem with the Long-Term Issuer Rating of NRZ. However, this movement in tandem with NRZ’s rating is predicated on the expected recovery on the Notes from the MSR assets remaining consistent with that, which is supportive of the current notch uplift from the Long-Term Issuer Rating of NRZ. The Notes benefit from a first priority, perfected security interest on specific pools of agency mortgage servicing rights (MSRs). The number of notches of uplift is a function of DBRS Morningstar’s expected recovery for noteholders from the liquidation of the MSR assets upon the occurrence of a credit event and the priority claim on those liquidation proceeds to the more senior class of notes. In other words, DBRS Morningstar gives considerations to the level of seniority and overcollateralization of each class of MSR notes when assigning the uplift from the Issuer Rating.

The Under Review with Positive Implications status is generally resolved with a rating action in three months. However, DBRS Morningstar expects to conclude the review once NRZ’s acquisition of Caliber closes, which is expected to occur in 3Q21. During its review, DBRS Morningstar will assess the ultimate impact of the acquisition on NRZ’s market position and ability to navigate shifts in the U.S. housing market as well as interest rate cycles. Further, the review will also focus on the acquisition’s impact on the expected earnings generation of the Company, its funding and capitalization, and risk management. Additionally, DBRS Morningstar will review the expected recovery on the Notes from the MSR assets and will adjust the notching from the NRZ Long-Term Issuer Rating as necessary per the DBRS Morningstar notching methodology for secured obligations.

RATING DRIVERS
Given that the ratings of the Notes are inherently linked to the Long-Term Issuer Rating of New Residential Investment Corp. (NRZ), the rating of the Notes will move in tandem with the Long-Term Issuer Rating of NRZ so long as the current expected recovery on the Notes is consistent with the uplift from the Long-Term Issuer Rating of NRZ. An improvement in the expected recovery from the MSR assets for the lower class notes would lead to a wider uplift of the ratings of the lower class notes from the Long-Term Issuer Rating of NRZ. Conversely, a decline in the expected recovery on the Notes from the MSR assets would result in the rating uplift from the Long-Term Issuer Rating for the higher classes of notes to narrow.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financials (September 29, 2020): https://www.dbrsmorningstar.com/research/367510/global-methodology-for-rating-non-bank-financial-institutions. Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021): https://www.dbrsmorningstar.com/research/372344/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support, and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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.

The primary sources of information used for this rating include Company Documents, S&P Global Market Intelligence, and Transaction Investor Remittance Reports. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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