DBRS Morningstar Assigns Ratings to Towd Point Mortgage Trust 2019-3

DBRS, Inc. (DBRS Morningstar) assigned the following ratings to the Asset-Backed Securities, Series 2019-3 (the Notes) issued by Towd Point Mortgage Trust 2019-3 (the Trust or the Issuer):

-- $164.7 million Class M1A at A (sf)
-- $164.7 million Class M1B at A (sf)
-- $164.7 million Class M1C at A (sf)
-- $164.7 million Class M1D at A (sf)
-- $164.7 million Class M1E at A (sf)
-- $823.7 million Class M1X at A (sf)
-- $122.7 million Class M2A at BBB (sf)
-- $122.7 million Class M2B at BBB (sf)
-- $122.7 million Class M2C at BBB (sf)
-- $122.7 million Class M2D at BBB (sf)
-- $122.7 million Class M2E at BBB (sf)
-- $613.7 million Class M2X at BBB (sf)

Classes M1X and M2X are interest-only notes. The class balances represent a notional amount.

Classes M1A, M1B, M1C, M1D, M1E, M1X, M2A, M2B, M2C, M2D, M2E, and M2X are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The A (sf) ratings on the Notes reflect 17.10% of credit enhancement provided by subordinated notes in the pool. The BBB (sf) ratings reflect credit enhancement of 13.30%.

DBRS Morningstar previously assigned ratings to certain other classes in the above transaction. For more information, please see the press release “DBRS Finalizes Provisional Ratings on Towd Point Mortgage Trust 2019-3” dated April 18, 2019.

This transaction is a securitization of a portfolio of seasoned performing and re-performing primarily first-lien, adjustable-rate residential mortgages funded by the issuance of the Notes. The Notes are backed by 25,737 loans with a total principal balance of $3,230,052,573 as of the Cut-off Date (March 31, 2019).

The Notes are backed by 25,994 loans with a total principal balance of $3,270,471,036 as of the Statistical Calculation Date (February 28, 2019). Unless specified otherwise, all the statistics regarding the mortgage loans in the related report are based on the Statistical Calculation Date.

The portfolio is approximately 149 months seasoned and contains 77.0% modified loans. The modifications happened more than two years ago for 89.5% of the modified loans. Within the pool, 7,832 mortgages have non-interest-bearing deferred amounts, which equate to 13.9% of the total principal balance. Included in the deferred amounts are Home Affordable Modification Program and proprietary principal forgiveness amounts, which comprise less than 0.01% of the total principal balance.

As of the Statistical Calculation Date, 97.9% of the pool is current, 1.8% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 0.3% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 81.5% 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. All but 0.1% of the pool is exempt from the Ability-to-Repay/Qualified Mortgage (QM) rules. These loans are designated as Temporary QM Safe Harbor.

FirstKey Mortgage, LLC (FirstKey) acquired the loans from various transferring trusts on or prior to the Closing Date. The transferring trusts acquired the mortgage loans between 2014 and 2019 and are beneficially owned by funds managed by affiliates of Cerberus Capital Management, L.P. Upon acquiring the loans from the transferring trusts, FirstKey, through a wholly owned subsidiary, Towd Point Asset Funding, LLC (the Depositor), contributed loans to the Trust. As the Sponsor, FirstKey, through a majority-owned affiliate, acquired and retained a 5% eligible vertical interest in each class of securities issued (other than any residual certificates) to satisfy the credit risk retention requirements. These loans were originated and previously serviced by various entities through purchases in the secondary market.

The loans are serviced by Select Portfolio Servicing, Inc. and Specialized Loan Servicing LLC. The servicing fee for the Towd Point Mortgage Trust 2019-3 portfolio is 0.18% per annum, lower than transactions backed by similar collateral. DBRS Morningstar stressed such servicing expenses in its cash flow analysis to account for a potential fee increase in a distressed scenario.

There 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 for first-lien loans 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 non-performing loans or real estate-owned (REO) properties to unaffiliated third parties individually or in bulk sales. Bulk sales require an asset sale price to equal a minimum reserve amount of 55.62% and the current principal amount of the mortgage loans or REO properties as of the bulk sale date.

When the aggregate pool balance of the mortgage loans is reduced to less than 30.0% 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 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 10.0% 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 of the mortgage loans, REO properties and other property from the Issuer, as long as the aggregate proceeds meet a minimum price.

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 more senior classes are retired.

The lack of principal and interest advances on delinquent mortgages may increase the possibility of periodic interest shortfalls to the Noteholders; however, principal proceeds can be used to pay interest to the Notes sequentially, and subordination levels are greater than expected losses, which may provide for timely payment of interest to the rated Notes.

The ratings reflect transactional strengths that include underlying assets that generally performed well through the crisis, a strong servicer and Asset Manager oversight. Additionally, a satisfactory third-party due diligence review was performed on the portfolio with respect to regulatory compliance, payment history, and data capture, as well as a title and tax review. Servicing comments were reviewed for a sample of the loans. Updated broker price opinions or exterior appraisals were provided for most of the pool; however, a reconciliation was not performed on the updated values.

The DBRS Morningstar ratings of A (sf) and BBB (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 dated April 18, 2019.

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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