DBRS Morningstar Assigns Provisional Ratings to OBX 2021-J3 Trust

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Mortgage-Backed Notes, Series 2021-J3 (the Notes) to be issued by OBX 2021-J3 Trust (OBX 2021-J3):

-- $385.6 million Class A-1 at AAA (sf)
-- $385.6 million Class A-2 at AAA (sf)
-- $385.6 million Class A-3 at AAA (sf)
-- $289.2 million Class A-4 at AAA (sf)
-- $289.2 million Class A-5 at AAA (sf)
-- $289.2 million Class A-6 at AAA (sf)
-- $96.4 million Class A-7 at AAA (sf)
-- $96.4 million Class A-8 at AAA (sf)
-- $96.4 million Class A-9 at AAA (sf)
-- $308.5 million Class A-10 at AAA (sf)
-- $308.5 million Class A-11 at AAA (sf)
-- $308.5 million Class A-12 at AAA (sf)
-- $77.1 million Class A-13 at AAA (sf)
-- $77.1 million Class A-14 at AAA (sf)
-- $77.1 million Class A-15 at AAA (sf)
-- $19.3 million Class A-16 at AAA (sf)
-- $19.3 million Class A-17 at AAA (sf)
-- $19.3 million Class A-18 at AAA (sf)
-- $47.6 million Class A-19 at AAA (sf)
-- $47.6 million Class A-20 at AAA (sf)
-- $47.6 million Class A-21 at AAA (sf)
-- $433.2 million Class A-22 at AAA (sf)
-- $433.2 million Class A-23 at AAA (sf)
-- $433.2 million Class A-24 at AAA (sf)
-- $433.2 million Class A-X-1 at AAA (sf)
-- $385.6 million Class A-X-2 at AAA (sf)
-- $385.6 million Class A-X-3 at AAA (sf)
-- $385.6 million Class A-X-4 at AAA (sf)
-- $289.2 million Class A-X-5 at AAA (sf)
-- $289.2 million Class A-X-6 at AAA (sf)
-- $289.2 million Class A-X-7 at AAA (sf)
-- $96.4 million Class A-X-8 at AAA (sf)
-- $96.4 million Class A-X-9 at AAA (sf)
-- $96.4 million Class A-X-10 at AAA (sf)
-- $308.5 million Class A-X-11 at AAA (sf)
-- $308.5 million Class A-X-12 at AAA (sf)
-- $308.5 million Class A-X-13 at AAA (sf)
-- $77.1 million Class A-X-14 at AAA (sf)
-- $77.1 million Class A-X-15 at AAA (sf)
-- $77.1 million Class A-X-16 at AAA (sf)
-- $19.3 million Class A-X-17 at AAA (sf)
-- $19.3 million Class A-X-18 at AAA (sf)
-- $19.3 million Class A-X-19 at AAA (sf)
-- $47.6 million Class A-X-20 at AAA (sf)
-- $47.6 million Class A-X-21 at AAA (sf)
-- $47.6 million Class A-X-22 at AAA (sf)
-- $433.2 million Class A-X-23 at AAA (sf)
-- $433.2 million Class A-X-24 at AAA (sf)
-- $433.2 million Class A-X-25 at AAA (sf)
-- $8.6 million Class B-1A at AA (sf)
-- $8.6 million Class B-X-1 at AA (sf)
-- $8.6 million Class B-1 at AA (sf)
-- $6.1 million Class B-2A at A (sf)
-- $6.1 million Class B-X-2 at A (sf)
-- $6.1 million Class B-2 at A (sf)
-- $1.4 million Class B-3 at BBB (sf)
-- $1.4 million Class B-4 at BB (sf)
-- $1.1 million 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 4.50% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 2.60%, 1.25%, 0.95%, 0.65%, and 0.40% 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 465 loans with a total principal balance of $453,649,616 as of the Cut-Off Date (September 1, 2021).

The originators for the aggregate mortgage pool are Fairway Independent Mortgage Corporation (26.2%); Guaranteed Rate, Inc. (17.6%); Guaranteed Rate Affinity, LLC (5.4%) and Proper Rate, LLC (1.2%) (collectively known as Guaranteed Rate Companies; GRC); 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 (87.9%), or
-- the related originator's guidelines (12.1%).

NewRez LLC doing business as Shellpoint Mortgage Servicing will service 100% of the mortgage loans, directly or through subservicers. Wells Fargo Bank, N.A. (Wells Fargo; 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.

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. Shortly after the onset of the pandemic, 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.

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 pandemic.

For more information regarding the economic stress assumed under its baseline scenario, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 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 presale 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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings

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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