Morningstar DBRS Finalizes Provisional Credit Ratings on Towd Point Mortgage Trust 2024-3

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings to the Asset-Backed Securities, Series 2024-3 (the Notes) issued by Towd Point Mortgage Trust 2024-3 (the Trust) as follows:

-- $429.4 million Class A1 at AAA (sf)
-- $395.8 million A1A at AAA (sf)
-- $33.6 million Class A1B AAA (sf)
-- $19.8 million Class A2 at AA (high) (sf)
-- $12.4 million Class M1 at A (high) (sf)
-- $9.2 million Class M2 at BBB (high) (sf)
-- $6.4 million Class B1 at BB (high) (sf)
-- $4.5 million Class B2 at B (high) (sf)

Classes A1A and A1B are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

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

The AAA (sf) credit rating on the Notes reflects 13.20% of credit enhancement provided by subordinated certificates. The AA (high) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and B (high) (sf) credit ratings reflect 9.20%, 6.70%, 4.85%, 3.55%, and 2.65% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of predominantly seasoned performing and reperforming first-lien mortgages funded by the issuance of asset-backed notes (the Notes). The Notes are backed by 1,224 loans with a total scheduled principal balance of $501,316,419 as of the Statistical Calculation Date (May 31, 2024).

The portfolio is approximately 87 months seasoned, with 95.8% of the pool seasoned for more than 24 months. The portfolio contains 9.5% modified loans, and modifications happened more than two years ago for 90.6% of the modified loans in the pool. Within the pool, 249 of the mortgages have non-interest-bearing deferred amounts.

As of the Statistical Calculation Date, 98.4% of the pool is current under the Mortgage Bankers Association (MBA) delinquency method. Additionally, seven loans (0.3% of the pool balance) in the pool are in bankruptcy. Approximately 86.5% of the mortgage loans have been zero times 30 days delinquent (0 x 30) for at least the past 24 months under the MBA delinquency method.

Approximately 28.3% of the pool is exempt from the Consumer Financial Protection Bureau (CFPB) Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. Morningstar DBRS assumed 18.9% of the loans to be designated as temporary QM safe harbor or QM safe harbor and 52.8% to be non-QM based upon the third party due-diligence review.

FirstKey Mortgage, LLC (FirstKey) will acquire the loans from various transferring trusts on the Closing Date. The transferring trusts acquired the mortgage loans and are beneficially owned by funds managed by affiliates of Cerberus Capital Management, L.P. (Cerberus). Upon acquiring the loans from the transferring trusts, FirstKey, through a wholly owned subsidiary, Towd Point Asset Funding, LLC (the Depositor), will contribute loans to the Trust. As the Sponsor, FirstKey, through one or more majority-owned affiliates, will acquire and retain a 5% eligible vertical interest in each class of securities to be issued (other than any residual certificates) to satisfy the credit risk retention requirements.

As of the Statistical Calculation Date (June 1, 2024), 71.8% of the loans will be serviced by Shellpoint Mortgage Servicing and 28.2% of the loans will be serviced by Select Portfolio Servicing, Inc. (SPS). The SPS aggregate servicing fee rate for each payment date is 0.1575% per annum, and the Shellpoint aggregate servicing fee is 0.1000% per annum. In its analysis, Morningstar DBRS applied a higher servicing fee rate.

For this transaction, the Servicer will fund advances of delinquent principal and interest (P&I) until the loans become 180 days delinquent under the MBA delinquency method or are otherwise deemed unrecoverable. Additionally, the Servicer is obligated to make certain advances in respect of homeowner association fees, taxes, and insurance, installment payments on energy improvement liens, and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

FirstKey, as the Asset Manager, has the option to sell certain nonperforming loans or real estate-owned (REO) properties to unaffiliated third parties individually or in bulk sales. Such sales require an asset sale price to at least equal a minimum reserve amount of the product of (1) 79.08% and (2) the current principal amount of the mortgage loans or REO properties as of the sale date.

When the aggregate pool balance of the mortgage loans is reduced to less than 20% of the Cut-Off Date balance, the Call Option Holder (TPMT 2024-3 COH, LLC, an affiliate of the Sponsor, the Seller, the Asset Manager, the Depositor, and the Risk Retention Holder) will have the option to cause the Issuer to sell all of its remaining property (other than amounts in the Breach Reserve Account) to one or more third-party purchasers so long as the aggregate proceeds meet a minimum price.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-Off Date, the Call Option Holder may purchase all of the mortgage loans, REO properties, and other properties from the Issuer, as long as the aggregate proceeds meet a minimum price.

The transaction allows for the issuance of Class A1 Loans in which the Issuer may enter into a Credit Agreement to borrow up to the balance of the Class A1 Loans from Class A1 Lenders on the Closing Date. For the TPMT 2024-3 transaction, the Class A1 Loans will not be issued at closing.

The transaction employs a sequential-pay cash flow structure. Principal proceeds and excess interest can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M1 and more subordinate bonds will not be paid from principal proceeds until the Class A1 and A2 Notes are retired.¿
The credit ratings reflect transactional strengths that include the following:

-- Loan-to-value ratios relative to reporting pools,
-- Satisfactory third-party due-diligence review,
-- Asset manager oversight,
-- Current loan status, and
-- Seasoning.

The transaction also includes the following challenges:

-- Representations and warranties standard,
-- No servicer advances of delinquent P&I, and
-- Assignments and endorsements.

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

Morningstar DBRS' credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for the rated notes are the Current Interest, Interest Shortfalls, and the Class Principal Balance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://dbrs.morningstar.com/research/427030 (January 23, 2024).

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

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (June 28, 2024) https://dbrs.morningstar.com/research/435279.

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

The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.
This is a solicited credit rating.

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

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

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

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

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (June 28, 2024), https://dbrs.morningstar.com/research/435258
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (June 28, 2024), https://dbrs.morningstar.com/research/435282
-- Representations and Warranties Criteria for U.S. RMBS Transactions (June 28, 2024), https://dbrs.morningstar.com/research/435273
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Operational Risk Assessment for U.S. RMBS Originators (June 28, 2024), https://dbrs.morningstar.com/research/435259
-- Operational Risk Assessment for U.S. RMBS Servicers (June 28, 2024), https://dbrs.morningstar.com/research/435261

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.