DBRS Morningstar Finalizes Provisional Ratings on New Residential Mortgage Loan Trust 2019-NQM5

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Mortgage-Backed Notes, Series 2019-NQM5 (the Notes) issued by New Residential Mortgage Loan Trust 2019-NQM5 (the Issuer) as follows:

-- $225.8 million Class A-1 at AAA (sf)
-- $16.3 million Class A-2 at AA (sf)
-- $29.3 million Class A-3 at A (sf)
-- $11.6 million Class M-1 at BBB (sf)
-- $9.6 million Class B-1 at BB (sf)
-- $5.6 million Class B-2 at B (sf)

The AAA (sf) rating reflects 25.95% of credit enhancement provided by subordinated Notes in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 20.60%, 11.00%, 7.20%, 4.05% and 2.20% 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 fixed- and adjustable-rate, prime, expanded prime and non-prime first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 576 loans with a total principal balance of $304,942,023 as of the Cut-Off Date (November 1, 2019).

All the loans were originated by NewRez LLC (NewRez) or by a correspondent and underwritten by NewRez. Shellpoint Mortgage Servicing is the Servicer. The mortgages were originated under the following programs:

(1) SmartSelf and SmartSelf Plus (43.1%) — Generally made to self-employed borrowers using bank statements to support self-employed income for qualification purposes.

(2) SmartEdge and SmartEdge Plus (42.9%) — Generally made to borrowers seeking flexible financing options (interest-only (IO) loans or higher debt-to-income ratios (DTIs)) who may have a had recent credit event (two or more years seasoned) that may preclude prequalification for another program.

(3) SmartVest (9.5%) — Generally made to borrowers who are experienced real estate investors looking to purchase or refinance an investment property that is held for business purposes.

(4) Smart Funds (2.1%) — Generally made to prime borrowers with significant assets who can purchase the property with their assets but choose to use a financing instrument for cash flow purposes.

(5) SmartTrac (0.7%) — Generally made to borrowers seeking flexible financing options (IO loans or higher DTIs) who may have had a recent credit event (one to two or more years seasoned) that may preclude prequalification for another program.

(6) SmartCondo (0.7%) — Generally made to prime borrowers seeking flexible financing options for condominium properties who do not meet agency guidelines.

(7) High-Balance Extra (0.7%) — Generally made to prime borrowers with loan amounts exceeding the government-sponsored-enterprise loan limits who may fall outside the Qualified Mortgage (QM) requirements based on documentation and DTI.

(8) Portfolio Debt Consolidation (0.2%) — Generally made to existing borrowers seeking flexible refinance options to help consolidate debt who do not meet agency guidelines.

(9) Portfolio Express ReFi (0.2%) — Generally made to existing borrowers seeking flexible-rate and term refinancing options who do not meet agency guidelines.

New Residential Investment Corp. is the Sponsor of the transaction. Nationstar Mortgage LLC will act as the Master Servicer. U.S. Bank National Association (rated AA (high) with a Stable trend by DBRS Morningstar) will serve as Indenture Trustee, Paying Agent, Note Registrar and Certificate Registrar. U.S. Bank Trust National Association will act as the Owner Trustee. Wells Fargo Bank, N.A. (rated AA with a Stable trend by DBRS Morningstar) will serve as Custodian.

Although the applicable mortgage loans were originated to satisfy the Consumer Financial Protection Bureau (CFPB) Ability-to-Repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government or private-label non-agency prime jumbo products for various reasons. In accordance with the CFPB QM/ATR rules, 0.2% are designated as QM Safe Harbor and 76.3% are designated as non-QM. Approximately 23.5% of the loans are made to investors for business purposes and, hence, are not subject to the QM/ATR rules.

The Servicer will fund advances of delinquent principal and interest (P&I) on any mortgage until such loan becomes 180 days delinquent. The Servicer is also obligated to make advances in respect of taxes, insurance premiums and reasonable costs incurred in the course of servicing and disposing of properties.

Through a majority-owned affiliate, the Sponsor intends to retain at least 5% of each class of Notes issued by the Issuer (other than the Class R Notes) to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The Seller will have the option, but not the obligation, to repurchase any mortgage loan that becomes 60 or more days delinquent 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, provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date (Optional Repurchase Price).

On or after the earlier of (1) the Payment Date occurring in November 2022 or (2) the date when the aggregate stated principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Depositor has the option to purchase all of the outstanding mortgage loans, thereby retiring the Notes, at a price equal to the outstanding aggregate stated principal balance of the mortgage loans plus accrued and unpaid interest.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Notes as the outstanding senior Notes are paid in full.

The DBRS Morningstar ratings of AAA (sf) and AA (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 (sf), BBB (sf), BB (sf) and B (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 ratings reflect transactional strengths that include the following:

-- Robust loan attributes and pool composition,
-- ATR rules and Appendix Q compliance,
-- Satisfactory third-party due diligence review and
-- Improved underwriting standards.

The transaction also includes the following challenges:

-- Representations and warranties framework,
-- Non-prime, non-QM and investor loans,
-- Servicer advances of delinquent P&I and
-- The Servicer’s financial capability.

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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