DBRS Morningstar Assigns Provisional Ratings to MFA 2021-INV2 Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Mortgage Pass-Through Certificates, Series 2021-INV2 (the Certificates) issued by MFA 2021-INV2 Trust (MFA 2021-INV2) as follows:

-- $183.3 million Class A-1 at AAA (sf)
-- $19.8 million Class A-2 at AA (high) (sf)
-- $30.8 million Class A-3 at A (high) (sf)
-- $15.5 million Class M-1 at BBB (sf)
-- $10.7 million Class B-1 at BB (sf)
-- $8.5 million Class B-2 at B (sf)

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

The AAA (sf) rating on the Class A-1 Certificates reflects 35.50% of credit enhancement provided by subordinate certificates. The AA (high) (sf), A (high) (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 28.55%, 17.70%, 12.25%, 8.50%, and 5.50% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate investor debt service coverage ratio (DSCR), first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 1,260 mortgage loans with a total principal balance of $284,199,572 as of the Cut-Off Date (September 30, 2021).

The originators for the mortgage pool are Lima One (90.8%), and two other originators, comprising approximately 9.2% of the mortgage loans. MFA Financial, Inc. is the Sponsor and the Servicing Administrator of the transaction. The servicers for the loans are Lima One (90.8%) and Fay (9.2%).

The mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile, and the DSCR, where applicable. Since the loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s Ability-to-Repay rules and TILA/RESPA Integrated Disclosure rule.

The Sponsor and Servicing Administrator are the same entity and the Depositor is its affiliate. The initial Controlling Holder is expected to be the Depositor. The Depositor will retain an eligible horizontal interest consisting of the Class B-3 and XS Certificates representing at least 5% of the aggregate fair value of the Certificates to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Additionally, the Depositor will initially own the Class B-2 and Class A-IO-S Certificates.

Wells Fargo Securities, LLC, an Initial Purchaser, is an affiliate of Wells Fargo Bank, N.A., which will act as the Securities Administrator, Certificate Registrar, and Custodian.

On or after the earlier of (1) the distribution date in October 2024 or (2) the date when the aggregate unpaid principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Depositor, at its option, may redeem all of the outstanding Certificates at a price equal to the class balances of the related Certificates plus accrued and unpaid interest, including any Cap Carryover Amounts, any preclosing deferred amounts, and any post-closing deferred amounts due to the Class XS Certificates (optional redemption). After such purchase, the Depositor may complete a qualified liquidation, which requires (1) a complete liquidation of assets within the trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.

On any date following the date on which the aggregate unpaid principal balance of the mortgage loans is less than or equal to 10% of the Cut-Off Date balance, the Servicing Administrator will have the option to terminate the transaction by purchasing all of the mortgage loans and any real-estate owned (REO) property from the issuer at a price equal to the sum of the aggregate unpaid principal balance of the mortgage loans (other than any REO property) plus accrued interest thereon, the lesser of the fair market value of any REO property and the stated principal balance of the related loan, and any outstanding and unreimbursed servicing advances, accrued and unpaid fees, any preclosing deferred amounts, any post-closing deferred amounts, and expenses that are payable or reimbursable to the transaction parties (optional termination). An optional termination is conducted as a qualified liquidation.

For this transaction, the Servicers will not fund advances on delinquent principal and interest (P&I) on any mortgage. However, the Servicers are obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties (servicing advances).

Of note, if the Servicers defer or capitalizes the repayment of any amounts owed by a borrower in
connection with the borrower's loan modification, the Servicer is entitled to reimburse itself from the excess servicing fee, first, and from principal collections, second, for any previously made and unreimbursed servicing advances related to the capitalized amount at the time of such modification.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers. Principal proceeds can be used to cover interest shortfalls on certain senior classes, dependent on applicable performance triggers. Also, the excess spread can be used to cover (1) realized loss and (2) cumulative applied realized loss amounts preceding the allocation of funds to unpaid Cap Carryover Amounts due to Class A-1 down to Class B-2.

CORONAVIRUS DISEASE (COVID-19) 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 very 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.

As of the Cut-Off Date, there are no loans that are subject to an active coronavirus-related forbearance plan with the Servicer.

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:

-- Improved underwriting standards,
-- Certain loan attributes,
-- Robust pool composition, and
-- Satisfactory third-party due-diligence review.

The transaction also includes the following challenges:

-- Investor loans,
-- No servicer advances of delinquent P&I,
-- Representations and warranties framework, and
-- No master servicer.

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.

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].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277