DBRS Morningstar Finalizes Provisional Ratings on Mello Mortgage Capital Acceptance 2021-INV2

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage Pass-Through Certificates, Series 2021-INV2 (the Certificates) issued by Mello Mortgage Capital Acceptance 2021-INV2 (MELLO 2021-INV2):

-- $379.8 million Class A-1 at AAA (sf)
-- $353.8 million Class A-2 at AAA (sf)
-- $254.7 million Class A-3 at AAA (sf)
-- $254.7 million Class A-3-A at AAA (sf)
-- $254.7 million Class A-3-X at AAA (sf)
-- $191.0 million Class A-4 at AAA (sf)
-- $191.0 million Class A-4-A at AAA (sf)
-- $191.0 million Class A-4-X at AAA (sf)
-- $63.7 million Class A-5 at AAA (sf)
-- $63.7 million Class A-5-A at AAA (sf)
-- $63.7 million Class A-5-X at AAA (sf)
-- $156.4 million Class A-6 at AAA (sf)
-- $156.4 million Class A-6-A at AAA (sf)
-- $156.4 million Class A-6-X at AAA (sf)
-- $98.3 million Class A-7 at AAA (sf)
-- $98.3 million Class A-7-A at AAA (sf)
-- $98.3 million Class A-7-X at AAA (sf)
-- $34.6 million Class A-8 at AAA (sf)
-- $34.6 million Class A-8-A at AAA (sf)
-- $34.6 million Class A-8-X at AAA (sf)
-- $16.5 million Class A-9 at AAA (sf)
-- $16.5 million Class A-9-A at AAA (sf)
-- $16.5 million Class A-9-X at AAA (sf)
-- $47.2 million Class A-10 at AAA (sf)
-- $47.2 million Class A-10-A at AAA (sf)
-- $47.2 million Class A-10-X at AAA (sf)
-- $99.1 million Class A-11 at AAA (sf)
-- $99.1 million Class A-11-X at AAA (sf)
-- $99.1 million Class A-11-A at AAA (sf)
-- $99.1 million Class A-11-AI at AAA (sf)
-- $99.1 million Class A-11-B at AAA (sf)
-- $99.1 million Class A-11-BI at AAA (sf)
-- $99.1 million Class A-12 at AAA (sf)
-- $99.1 million Class A-13 at AAA (sf)
-- $26.0 million Class A-14 at AAA (sf)
-- $26.0 million Class A-15 at AAA (sf)
-- $273.4 million Class A-16 at AAA (sf)
-- $106.3 million Class A-17 at AAA (sf)
-- $379.8 million Class A-X-1 at AAA (sf)
-- $379.8 million Class A-X-2 at AAA (sf)
-- $99.1 million Class A-X-3 at AAA (sf)
-- $26.0 million Class A-X-4 at AAA (sf)
-- $8.3 million Class B-1 at AA (low) (sf)
-- $11.0 million Class B-2 at A (low) (sf)
-- $6.7 million Class B-3 at BBB (low) (sf)
-- $4.4 million Class B-4 at BB (low) (sf)
-- $1.0 million Class B-5 at B (sf)

Classes A-3-X, A-4-X, A-5-X, A-6-X, A-7-X, A-8-X, A-9-X, A-10-X, A-11-X, A-11-AI, A-11-BI, A-X-1 A-X-2, A-X-3, and A-X-4 are interest-only (IO) certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-3-A, A-3-X, A-4, A-4-A, A-4-X, A-5, A-5-A, A-5-X, A-6, A-7, A-7-A, A-7-X, A-8, A-9, A-10, A-11-A, A-11-AI, A-11-B, A-11-BI, A-12, A-13, A-14, A-16, A-17, A-X-2, and A-X-3 are exchangeable certificates. These classes can be exchanged for combinations of exchange certificates.

Classes A-2, A-3, A-3-A, A-4, A-4-A, A-5, A-5-A, A-6, A-6-A, A-7, A-7-A, A-8, A-8-A, A-9, A-9-A, A-10, A-10-A, A-11, A-11-A, A-11-B, A-12, and A-13 are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-14 and A-15) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 8.75% of credit enhancement provided by subordinated certificates. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 6.75%, 4.10%, 2.50%, 1.45%, and 1.20% of credit enhancement, respectively.

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

This is a securitization of a portfolio of first-lien, fixed-rate prime conventional investment-property residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 1,164 loans with a total principal balance of $416,188,820 as of the Cut-Off Date (August 1, 2021).

In contrast to loanDepot.com, LLC's (loanDepot) prime MELLO MTG series, MELLO 2021-INV2 is its second prime securitization composed of fully amortizing fixed-rate mortgages on non-owner-occupied residential investment properties. The portfolio consists of conforming mortgages with original terms to maturity of primarily 30 years, which were underwritten by loanDepot using an automated underwriting system designated by Fannie Mae or Freddie Mac and were eligible for purchase by such agencies. In its analysis, DBRS Morningstar applied property value haircuts to such loans, which increased the expected losses on the collateral. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section.

loanDepot is the Originator, Seller, and Servicing Administrator of the mortgage loans. mello Credit Strategies LLC is the Sponsor of the transaction. LD Holdings Group LLC will serve as Guarantor with respect to the remedy obligations of the Seller. mello Securitization Depositor LLC, a subsidiary of the Sponsor and an affiliate of the Seller, will act as Depositor of the transaction.

Cenlar FSB will act as the Servicer. Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Negative trend by DBRS Morningstar) will act as the Master Servicer and Securities Administrator. Wilmington Savings Fund Society, FSB will serve as Trustee, and Deutsche Bank National Trust Company will serve as Custodian.

For this transaction, the servicing fee is composed of three separate components: the aggregate base servicing fee, the aggregate delinquent servicing fee, and the aggregate additional servicing fee. These fees vary, based on the delinquency status of the related loan, and will be paid from interest collections before distribution to the securities.

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

Coronavirus Pandemic Impact
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures 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 the pandemic.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forebear mortgage payments was widely available and it drove forbearances to a very high level. When the dust settled, coronavirus-induced forbearances in 2020 performed better than expected, thanks to government aid, low loan-to-value 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 - 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 high-quality credit attributes, well-qualified borrowers, structural enhancements, satisfactory third-party due-diligence review, and 100% current loans.

The ratings reflect transactional weaknesses that include loans that are 100% investor properties and certain borrowers with multiple mortgages in the securitized pool, certain aspects of the representations and warranties framework, and the servicing administrator’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 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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