DBRS Morningstar Finalizes Provisional Ratings on New Residential Mortgage Loan Trust 2023-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Mortgage-Backed Notes, Series 2023-1 (the Notes) issued by New Residential Mortgage Loan Trust 2023-1 (NRMLT 2023-1 or the Trust). In addition, DBRS Morningstar assigned new ratings to the Class B-5A and Class B-5B notes, which were issued in place of the Class B-5 notes. DBRS Morningstar has discontinued its provisional rating on the Class B-5 notes.

-- $138.1 million Class A at AAA (sf)
-- $11.5 million Class B-1 at AA (sf)
-- $10.5 million Class B-2 at A (sf)
-- $8.5 million Class B-3 at BBB (sf)
-- $5.5 million Class B-4 at BB (sf)
-- $2.8 million Class B-5A at B (sf)
-- $2.8 million Class B-5B at B (sf)

The AAA (sf) rating on the Class A notes reflects 31.05% of credit enhancement provided by subordinated notes in the transaction. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 25.30%, 20.05%, 15.80%, 13.05%, and 10.30% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of newly originated and seasoned, performing and reperforming, first- and second-lien residential mortgages, funded by the issuance of the Notes. The Notes are backed by 1,215 loans with a total principal balance of $200,346,263 as of the Cut-Off Date (April 1, 2023).

The portfolio is approximately 61 months seasoned on average, though the loan ages are quite dispersed, ranging from three to 358 months. The majority of the loans had origination guideline or document deficiencies, which prevented such loans being sold to Fannie Mae, Freddie Mac, or another purchaser, and the loans were subsequently put back to the sellers. In its analysis, DBRS Morningstar assessed such defects and applied certain penalties, consequently increasing expected losses on the mortgage pool.

NewRez LLC (NewRez) originated 72.0% of the pool, which includes most of the loans with guideline or document deficiencies. DBRS Morningstar did not receive originator information on certain loans (5.2%) and the remaining originators each comprised less than 5.0% of the pool.

In the portfolio, 19.0% of the loans are modified. The modifications happened more than two years ago for 66.9% of the modified loans. Within the pool, 250 mortgages have non-interest-bearing deferred amounts, which equates to 2.1% of the total principal balance. Unless specified otherwise, all statistics on the mortgage loans in the related report are based on the current balance, including the applicable non-interest-bearing deferred amounts.

Certain loans in the pool (30.5%) are not subject to or are exempt from the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules because of seasoning or because they are business purpose loans. The loans subject to the ATR rules are designated as QM Safe Harbor (37.4%), Non-QM (31.2%), and QM Rebuttable (0.9%) by unpaid principal balance (UPB).

NRZ Sponsor XIII LLC (the Seller) acquired certain mortgage loans prior to the Cut-Off Date and will acquire the remaining Mortgage Loans on the Closing Date, and, through a wholly owned subsidiary, New Residential Funding 2023-1 LLC (the Depositor), will contribute the loans to the Trust. As the Sponsor, Rithm Capital Corp. or one of its majority-owned affiliates will acquire and retain a 5% eligible horizontal residual interest in the Notes, consisting of the Class B-5B, Class B-6, Class B-7, Class B-8, and Class XS notes, in the aggregate, to satisfy the credit risk retention requirements.

Since May 2014, 28 seasoned securitizations have been issued from the NRMLT core shelf. These securitizations contained highly seasoned loans sourced from prior deal collapses. Although the historical performance for prior NRMLT deals has been generally satisfactory with low losses (<1.5%), the collateral comprising those deals were different in nature from NRMLT 2023-1, as described earlier.

Shellpoint Mortgage Servicing (Shellpoint) will act as the Servicer of the loans. Approximately 3.7% of the pool are currently serviced by another servicer and will transfer to Shellpoint prior to July 1, 2023. Nationstar Mortgage LLC will serve as Master Servicer and Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will serve as Paying Agent.

The Servicer will make advances of delinquent principal and interest on the mortgages to the extent such advances are deemed recoverable. In addition, the Servicer is obligated to make advances in respect of taxes and insurance as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Servicer has the right to sell mortgage loans that become 60 or more days delinquent (excluding Coronavirus Disease (COVID-19) forbearance loans) in the secondary market in an arms-length transaction at fair market value to maximize proceeds to the Issuer.

The Seller will have the option, but not the obligation, to repurchase any mortgage loan that becomes 60 or more days delinquent (excluding COVID-19 forbearance loans) under the Mortgage Bankers Association method or any real estate-owned property acquired in respect of a mortgage loan at a price equal to the stated principal balance of such loan (Optional Repurchase Price), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-off Date.

On or after the Payment Date on which the aggregate Stated Principal Balance of the Mortgage Loans as of the last day of the related Due Period is less than or equal to 25% of the aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-Off Date, the Depositor or its assignee has the option to purchase all the outstanding notes at par plus interest.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Notes, but such shortfalls on Class B-2 and more subordinate bonds will not be paid from principal proceeds until Classes A and B-1 are retired.

The ratings reflect transactional strengths that include the following:
-- Collateral credit quality,
-- Structural features,
-- Current delinquency status,
-- Seasoning, and
-- Third-party due-diligence review.

The transaction also includes the following challenges:
-- Loans originated outside of Fannie Mae, Freddie Mac, or investor guidelines,
-- Representations and Warranties standard,
-- Assignments and endorsements, and
-- The Servicer's financial capabilities

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

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (March 3, 2023; https://www.dbrsmorningstar.com/research/410473).

Other methodologies referenced in this transaction are listed at the end of this press release.

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/413218.

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023),
https://www.dbrsmorningstar.com/research/413297
-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
https://www.dbrsmorningstar.com/research/366613
-- Representations and Warranties Criteria for U.S. RMBS Transactions (April 22, 2020),
https://www.dbrsmorningstar.com/research/359902
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008
-- Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
https://www.dbrsmorningstar.com/research/405664
-- Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),
https://www.dbrsmorningstar.com/research/405665

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].