DBRS Morningstar Finalizes Provisional Ratings on Mill City Mortgage Loan Trust 2019-GS2

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage-Backed Securities, Series 2019-GS2 (the Notes) issued by Mill City Mortgage Loan Trust 2019-GS2 (the Issuer):

-- $66.0 million Class A1A at AAA (sf)
-- $197.9 million Class A1B at AAA (sf)
-- $263.8 million Class A1 at AAA (sf)
-- $301.1 million Class A2 at AA (low) (sf)
-- $323.7 million Class A3 at A (low) (sf)
-- $341.2 million Class A4 at BBB (low) (sf)
-- $37.3 million Class M1 at AA (low) (sf)
-- $22.6 million Class M2 at A (low) (sf)
-- $8.7 million Class M3A at BBB (low) (sf)
-- $8.7 million Class M3B at BBB (low) (sf)
-- $17.4 million Class M3 at BBB (low) (sf)
-- $11.8 million Class B1A at BB (low) (sf)
-- $11.8 million Class B1B at BB (low) (sf)
-- $23.7 million Class B1 at BB (low) (sf)
-- $11.3 million Class B2A at B (low) (sf)
-- $11.3 million Class B2B at B (low) (sf)
-- $22.6 million Class B2 at B (low) (sf)

Classes A1, A2, A3, A4, M3, B1 and B2 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) rating on the Class A1A and A1B Notes reflects 38.75% of credit enhancement provided by subordinated Notes in the pool. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf) and B (low) (sf) ratings reflect 30.10%, 24.85%, 20.80%, 15.30% and 10.05% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of primarily first-lien, seasoned, performing and re-performing residential mortgages funded by the issuance of the Notes. The Notes are backed by 3,565 loans with a total principal balance of approximately $453,428,271 as of the Cut-Off Date (September 30, 2019).

The loans are approximately 147 months seasoned. As of the Cut-Off Date, 86.1% of the pool is current, 6.5% is 30 days to 59 days delinquent, 1.4% is 60 days to 89 days delinquent, 2.0% is 90+ days delinquent under the Mortgage Bankers Association delinquency method and 4.0% of the pool is in bankruptcy. Approximately 28.3% of the pool has been zero times 30 (0 x 30) days delinquent for the past 24 months, 55.1% has been 0 x 30 for the past 12 months and 72.6% has been 0 x 30 for the past six months. Approximately 10.9% of loans were missing data in certain months and, as such, are not included when determining the 0 x 30 days delinquent duration.

Modified loans comprise 75.9% of the portfolio. The modifications happened more than two years ago for 78.4% of the
modified loans. Within the pool, 1,129 loans have non-interest-bearing deferred amounts, which equates to 8.7% of the total principal balance.

In accordance with the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) rules, 3.0% of the loans are designated as QM Safe Harbor, 0.7% as QM Rebuttable Presumption and 3.2% as non-QM. Approximately 93.0% of the loans are not subject to the QM rules.

Approximately 9.0% of the pool comprises non-first-lien loans.

Goldman Sachs Mortgage Company (GSMC) is the Sponsor for the transaction and is acquiring (most of) the loans from various Mill City entities in connection with the securitization. GSMC is acquiring a small percentage of the loans into MTGLQ Investors L.P. to be contributed to the transaction. As the Sponsor, GSMC, directly or through a majority-owned affiliate, will acquire and retain a 5.0% uncertificated eligible vertical interest in the transaction to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. These loans were originated and previously serviced by various entities through purchases in the secondary market.

As of the Cut-Off Date, the loans are serviced by NewRez LLC doing business as Shellpoint Mortgage Servicing (55.6%) and Fay Servicing, LLC (44.4%).

There will not be any advancing of delinquent principal or interest on any mortgages by the servicer or any other party to the transaction; however, the servicer is obligated to make advances in respect of homeowner association fees, taxes and insurance as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

When the aggregate pool balance of the mortgage loans is reduced to less than 20% of the Cut-Off Date balance, the holders of more than 50% of the Class X Certificates will have the option to cause the Issuer to sell 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 holder(s) of more than 50% of the most subordinate class of Notes, or their affiliates, may purchase all mortgage loans, real estate-owned properties and other properties from the Issuer as long as the aggregate proceeds meet a minimum price.

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 M2 and more subordinate bonds will not be paid until the more senior classes are retired.

The DBRS Morningstar ratings of AAA (sf) and AA (low) (sf) address the timely payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes. The DBRS Morningstar ratings of A (low) (sf), BBB (low) (sf), BB (low) (sf) and B (low) (sf) address the ultimate payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes.

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

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, which can be found on dbrs.com under Methodologies & Criteria.

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 info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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