DBRS Morningstar Finalizes Provisional Ratings on OBX 2021-J2 Trust

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage-Backed Notes, Series 2021-J2 (the Notes) issued by OBX 2021-J2 Trust (OBX 2021-J2):

-- $325.1 million Class A-1 at AAA (sf)
-- $325.1 million Class A-2 at AAA (sf)
-- $325.1 million Class A-3 at AAA (sf)
-- $243.8 million Class A-4 at AAA (sf)
-- $243.8 million Class A-5 at AAA (sf)
-- $243.8 million Class A-6 at AAA (sf)
-- $81.3 million Class A-7 at AAA (sf)
-- $81.3 million Class A-8 at AAA (sf)
-- $81.3 million Class A-9 at AAA (sf)
-- $260.1 million Class A-10 at AAA (sf)
-- $260.1 million Class A-11 at AAA (sf)
-- $260.1 million Class A-12 at AAA (sf)
-- $65.0 million Class A-13 at AAA (sf)
-- $65.0 million Class A-14 at AAA (sf)
-- $65.0 million Class A-15 at AAA (sf)
-- $16.3 million Class A-16 at AAA (sf)
-- $16.3 million Class A-17 at AAA (sf)
-- $16.3 million Class A-18 at AAA (sf)
-- $44.0 million Class A-19 at AAA (sf)
-- $44.0 million Class A-20 at AAA (sf)
-- $44.0 million Class A-21 at AAA (sf)
-- $369.1 million Class A-22 at AAA (sf)
-- $369.1 million Class A-23 at AAA (sf)
-- $369.1 million Class A-24 at AAA (sf)
-- $369.1 million Class A-X-1 at AAA (sf)
-- $325.1 million Class A-X-2 at AAA (sf)
-- $325.1 million Class A-X-3 at AAA (sf)
-- $325.1 million Class A-X-4 at AAA (sf)
-- $243.8 million Class A-X-5 at AAA (sf)
-- $243.8 million Class A-X-6 at AAA (sf)
-- $243.8 million Class A-X-7 at AAA (sf)
-- $81.3 million Class A-X-8 at AAA (sf)
-- $81.3 million Class A-X-9 at AAA (sf)
-- $81.3 million Class A-X-10 at AAA (sf)
-- $260.1 million Class A-X-11 at AAA (sf)
-- $260.1 million Class A-X-12 at AAA (sf)
-- $260.1 million Class A-X-13 at AAA (sf)
-- $65.0 million Class A-X-14 at AAA (sf)
-- $65.0 million Class A-X-15 at AAA (sf)
-- $65.0 million Class A-X-16 at AAA (sf)
-- $16.3 million Class A-X-17 at AAA (sf)
-- $16.3 million Class A-X-18 at AAA (sf)
-- $16.3 million Class A-X-19 at AAA (sf)
-- $44.0 million Class A-X-20 at AAA (sf)
-- $44.0 million Class A-X-21 at AAA (sf)
-- $44.0 million Class A-X-22 at AAA (sf)
-- $369.1 million Class A-X-23 at AAA (sf)
-- $369.1 million Class A-X-24 at AAA (sf)
-- $369.1 million Class A-X-25 at AAA (sf)
-- $3.8 million Class B-1A at AA (sf)
-- $3.8 million Class B-X-1 at AA (sf)
-- $3.8 million Class B-1 at AA (sf)
-- $5.2 million Class B-2A at A (sf)
-- $5.2 million Class B-X-2 at A (sf)
-- $5.2 million Class B-2 at A (sf)
-- $1.5 million Class B-3 at BBB (sf)
-- $1.1 million Class B-4 at BB (sf)
-- $574.0 thousand Class B-5 at B (sf)

Classes A-X-1, A-X-2, A-X-3, A-X-4, A-X-5, A-X-6, A-X-7, A-X-8, A-X-9, A-X-10, A-X-11, A-X-12, A-X-13, A-X-14, A-X-15, A-X-16, A-X-17, A-X-18, A-X-19, A-X-20, A-X-21, A-X-22, A-X-23, A-X-24, A-X-25, B-X-1, and B-X-2 are interest-only notes. The class balance represents notional amounts.

Classes A-1, A-2, A-3, A-4, A-5, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-16, A-17, A-19, A-20, A-22, A-23, A-24, A-X-2, A-X-3, A-X-4, A-X-5, A-X-8, A-X-9, A-X-10, A-X-11, A-X-12, A-X-13, A-X-14, A-X-17, A-X-20, A-X-23, A-X-24, A-X-25, B-1, and B-2 are exchangeable notes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-16, A-17, and A-18 are super senior notes. These classes benefit from additional protection from senior support notes (Classes A-19, A-20, and A-21) with respect to loss allocation.

The AAA (sf) ratings on the Notes reflect 3.50% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 2.50%, 1.15%, 0.75%, 0.45%, and 0.30% 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, prime residential mortgages funded by the issuance of the Notes. The Notes are backed by 377 loans with a total principal balance of $382,482,549 as of the Cut-Off Date (July 1, 2021).

The originators for the aggregate mortgage pool are Guaranteed Rate, Inc. (27.6%), Guaranteed Rate Affinity, LLC (7.3%), and Proper Rate, LLC (0.6%) (collectively known as Guaranteed Rate Companies); Guild Mortgage Company LLC (Guild; 11.4%); PrimeLending (10.7%); Commerce Home Mortgage, LLC (10.0%); and various other originators, each comprising no more than 10% of the pool by principal balance. On the Closing Date, the Seller, Onslow Bay Financial LLC, will acquire the mortgage loans from Bank of America, N.A. (BANA; rated AA (low) with a Stable trend and R-1 (middle) with a Stable trend by DBRS Morningstar).

Through bulk purchases, BANA generally acquired the mortgage loans underwritten to
-- Its jumbo whole loan acquisition guidelines (98.55%), or
-- The related originator's guidelines (1.45%).

DBRS Morningstar conducted an operational risk assessment on BANA’s aggregator platform, as well as certain originators, and deemed them acceptable.

NewRez LLC doing business as Shellpoint Mortgage Servicing will service 100% of the mortgage loans, directly or through subservicers. Wells Fargo Bank, N.A. (rated AA with a Negative trend and R-1 (high) with a Negative trend by DBRS Morningstar) will act as Master Servicer, Paying Agent, Note Registrar, and Custodian. Wilmington Savings Fund Society, FSB will serve as Indenture Trustee and Owner Trustee.

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

No loans in this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, 2020, had been granted forbearance plans because the borrowers reported financial hardship related to the Coronavirus Disease (COVID-19) pandemic.

Coronavirus Pandemic Impact
The coronavirus 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. Shortly after the onset of the coronavirus, DBRS Morningstar saw an increase in the delinquencies for many residential mortgage-backed securities (RMBS) asset classes.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term periods of payment relief that may perform differently from traditional delinquencies. At the onset of the pandemic, the option to forebear mortgage payments was widely available, driving forbearances to an elevated level. When the dust settled, loans with coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes in recent months, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios - June 2021 Update,” published on June 18, 2021), DBRS Morningstar may assume higher loss expectations for pools with loans on forbearance plans.

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 - June 2021 Update,” dated June 18, 2021.

The ratings reflect transactional strengths that include the following:
-- High-quality credit attributes,
-- Well-qualified borrowers,
-- Satisfactory third-party due-diligence review,
-- Structural enhancements, and
-- 100% current loans.

The transaction also includes the following challenges:
-- R&W framework,
-- Entities lack financial strength or securitization history, and
-- Servicer’s financial capabilities.

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

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 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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