DBRS Morningstar Assigns Provisional Ratings to MFA 2021-RPL1 Trust

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Mortgage-Backed Notes, Series 2021-RPL1 (the Notes) to be issued by MFA 2021-RPL1 Trust (the Trust):

-- $376.0 million Class A-1 at AAA (sf)
-- $24.6 million Class A-2 at AA (sf)
-- $16.8 million Class M-1 at A (sf)
-- $17.3 million Class M-2 at BBB (sf)
-- $16.1 million Class B-1 at BB (sf)
-- $17.3 million Class B-2 at B (sf)

The AAA (sf) rating on the Notes reflects 20.55% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 15.35%, 11.80%, 8.15%, 4.75%, and 1.10% of credit enhancement, respectively.

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

The Trust is a securitization of a portfolio of seasoned performing and reperforming first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 2,151 loans with a total principal balance of $473,197,059 as of the Cut-Off Date (April 30, 2021).

The loans are approximately 181 months seasoned. As of the Cut-Off Date, 97.7% of the pool is current and 2.3% is 30 days delinquent under the Mortgage Bankers Association (MBA) method. Approximately 57.5% of the mortgage loans have been 0 x 30 for at least the past 24 months, 80.9% have been 0 x 30 for the past 12 months, and 97.7% have been 0 x 30 for the past six months.

The portfolio contains 86.4% modified loans. Within the pool, 890 mortgages (44.4%) have non-interest-bearing deferred amounts as of the Cut-Off Date, which equates to 7.8% of the total principal balance. The modifications happened more than two years ago for 91.6% of the modified loans.

As the Sponsor, MFA Financial, Inc., or a majority-owned affiliate, will acquire and retain at least a 5% eligible horizontal interest in the securities to be issued to satisfy the credit risk retention requirements. These loans were originated and previously serviced by various entities through purchases in the secondary market.

The loans will be serviced by Fay Servicing, LLC (60.4%), Select Portfolio Servicing, Inc. (23.5%), and Planet Home Lending, LLC (16.1%).

There will be no advancing of delinquent principal or interest on the mortgages by the Servicers or any other party to the transaction; however, the Servicers are obligated to make advances in respect of homeowner's association fees, taxes and insurance, reasonable costs, and expenses incurred in the course of servicing and disposing of properties.

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 60 or more days delinquent under the MBA at a price equal to the principal balance of such loan.

On or after the earlier of (1) the three-year anniversary of the Closing Date or (2) the date when the aggregate principal balance of the mortgage loans is reduced to 10% of the Cut-Off Date balance, the Sponsor has the option to purchase all of the Notes at the Redemption Price. The Redemption Price is equal to (1) the remaining aggregate note amount of the Notes; (2) accrued and unpaid interest, including any interest shortfall and net weighted-average coupon shortfall amounts; (3) unreimbursed post Cut-Off Date deferred amounts allocated as realized losses; and (4) any fees and expenses of the transaction parties.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Class A-1 and A-2 Notes, but such shortfalls on Class M-1 and more subordinate bonds will not be paid until the more senior classes are retired.

Coronavirus Pandemic Impact
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar saw increases in delinquencies for many residential mortgage-backed securities (RMBS) asset classes, shortly after the onset of coronavirus.

Such mortgage delinquencies were mostly in the form of forbearance, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of coronavirus, because the option to forebear mortgage payments was so widely available, it drove forbearance to a very high level. When the dust settled, coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value (LTV) ratios, and good underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending down in recent months as the forbearance period comes to an end for many borrowers.

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021), DBRS Morningstar may assume higher loss expectations for pools with loans on forbearance plans.

In addition, for this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, 2020, 14.3% of the borrowers have completed coronavirus-related relief plans because the borrowers reported financial hardship related to the coronavirus pandemic. These forbearance plans allowed temporary payment holidays, generally followed by repayment once the forbearance period ends.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: “DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19),” dated March 12, 2020; “DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),” dated March 20, 2020; and “Global Macroeconomic Scenarios: March 2021 Update,” dated March 17, 2021.

The ratings reflect transactional strengths that include the following:

-- LTV ratios relative to reperforming pools.
-- Seasoning.
-- Asset manager oversight.
-- Structural features.
-- Current delinquency status.
-- Certain aspects of third-party due-diligence reviews.

The transaction also includes the following challenges:

-- Representations and warranties standard.
-- No servicer advances of delinquent principal and interest.
-- Assignments and endorsements.
-- Payment history and tax, title, and lien reviews at acquisition.

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

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 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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