DBRS Morningstar Finalizes Provisional Ratings on Barclays Mortgage Loan Trust 2022-INV1
RMBSDBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Mortgage-Backed Notes, Series 2022-INV1 (the Notes) issued by Barclays Mortgage Loan Trust 2022-INV1 (BARC 2022-INV1):
-- $189.2 million Class A-1 at AAA (sf)
-- $30.2 million Class A-2 at AA (high) (sf)
-- $40.0 million Class A-3 at A (high) (sf)
-- $22.3 million Class M-1 at BBB (high) (sf)
-- $17.3 million Class B-1 at BB (sf)
-- $16.7 million Class B-2 at B (low) (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 Notes reflects 42.35% of credit enhancement provided by subordinate certificates. The AA (high) (sf), A (high) (sf), BBB (high) (sf), BB (sf), and B (low) (sf) ratings reflect 33.15%, 20.95%, 14.15%, 8.90%, and 3.80% 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 Notes. The Notes are backed by 1,042 mortgage loans with a total principal balance of $328,102,211 as of the Closing Date (May 19, 2022). Subsequent to the issuance of the related presale report, seven loans totaling about 0.4% of the balance as of the Cut-Off Date (April 1, 2022) have been paid off. Unless specified otherwise, all the statistics regarding the mortgage loans in this press release and in the related rating report are based on the Cut-Off Date balance of $329,426,161 noted in the presale report because the payoffs did not materially affect the collateral composition.
The top originators for the pool are HomeXpress Mortgage Corp. (33.3% of the pool) and Velocity Commercial Capital, LLC (19.7% of the pool). The remaining originators each comprise less than 8.0% of the mortgage loans. Also, approximately 39.5% of loans were initially acquired by Invigorate Finance, LLC and Fay Servicing, LLC (Fay), doing business as Invigorate Finance, LLC (Invigorate Parties), from third-party originators and were subsequently sold to an affiliate of the Seller.
The pool is about four months seasoned on a weighted-average basis, although seasoning may span from two to 10 months. All loans were current as of the Cut-Off Date. Also, most loans (98.4% of the pool) have been always performing since origination.
The mortgage loans were underwritten to program guidelines for business-purpose loans designed to rely on DSCR, property value and the mortgagor’s credit profile (No Ratio), or borrower income, 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 Servicers of the loans are NewRez LLC, formerly known as New Penn Financial, LLC, doing business as Shellpoint Mortgage Servicing (60.5% of the pool) and Fay (39.5% of the pool). Nationstar Mortgage LLC will act as a Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar), an affiliate of Citigroup Inc., will act as Indenture Trustee, Paying Agent, Note Registrar, Certificate Registrar, and Owner Trustee. Computershare Trust Company, N.A. (rated BBB with a Stable trend by DBRS Morningstar) will act as a Custodian. Pentalpha Surveillance LLC will serve as the Representations and Warranties (R&W) Reviewer.
The Sponsor or a majority-owned affiliate of the Sponsor will acquire and retain an eligible vertical interest of a minimum of 5% of each of the Class A-1, Class A-2, Class A-3, Class M-1, Class B-1, Class B-2, Class B-3, Class A-IO-S, and Class XS Notes, representing at least 5% of the aggregate fair value of the Notes to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure.
The Controlling Holder (the majority holder or holders, of the Class XS Notes; initially, unaffiliated with the Sponsor) may, at its option, on or after the earlier of (1) the third anniversary of the Closing Date or (2) the date on which the total loans' and real estate owned (REO) properties' balance falls to or below 30% of the loan balance as of the Cut-Off Date, purchase all of the loans and REO properties at the redemption price described in the transaction documents (Optional Redemption).
The Controlling Holder, at its option, may purchase any mortgage loan that is 90 days or more delinquent under the Mortgage Banker Association (MBA) method (or in the case of any loan that has been subject to a Coronavirus Disease (COVID-19) pandemic-related forbearance plan, on any date from and after the date on which such loan becomes 90 days MBA delinquent following the end of the forbearance period) or any REO property at the optional purchase price described in the transaction documents. The total balance of such loans will not exceed 10% of the Cut-Off Date balance.
For this transaction, the Servicers will fund advances of delinquent principal and interest (P&I) until loans become 90 days delinquent or are otherwise deemed unrecoverable. Of note, the Servicers will make P&I Advances with respect to any loan where the borrower has been granted forbearance (or a similar loss mitigation action) as a result of the coronavirus pandemic or otherwise (to the extent that such P&I advance amounts are deemed recoverable). Additionally, the Servicers are obligated to make advances with respect to taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties (Servicing Advances). The Master Servicer will be obligated to make any P&I Advances that the related Servicer was required to make if the related Servicer fails to do so.
Of note, if the Servicers defer or capitalize the repayment of any amounts owed by a borrower in
connection with the borrower's loan modification, the Servicers are 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 related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). Principal proceeds can be used to cover interest shortfalls on the Class A-1 and Class A-2 Notes (IIPP) before being applied sequentially to amortize the balances of the senior and subordinated notes. For the Class A-3 Notes (only after a Credit Event) and for the mezzanine and subordinate classes of notes (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior notes have been paid off in full. The excess spread can be used to cover (1) realized losses and (2) cumulative applied realized loss amounts preceding the allocation of funds to unpaid Net WAC Shortfalls due to Class A-1 down to Class A-3. Of note, the P&I otherwise payable to the Class B-3 Notes may be used to pay the Class A-1 Net WAC Shortfall amount after the Class A-1 coupon steps up by 100 basis points on and after the payment date in June 2026.
Coronavirus 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 pandemic, DBRS Morningstar saw an increase in 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 forbear 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, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.
As of the Cut-Off Date, no loans are subject to an active coronavirus-related forbearance plan with any 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 March 2022 Update,” dated March 24, 2022.
The ratings reflect transactional strengths that include the following:
-- Improved underwriting standards,
-- Certain loan attributes,
-- Robust pool composition,
-- Satisfactory third-party due-diligence reviews, and
-- Certain aspects of R&W framework.
The transaction also includes the following challenges:
-- Investor loans,
-- Limited servicer advances of delinquent P&I,
-- Servicers’ financial capabilities, and
-- The representations and warranties standard.
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
ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.