DBRS Morningstar Assigns Provisional Ratings to Towd Point Mortgage Trust 2020-2

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to Asset-Backed Securities, Series 2020-2 (the Notes) to be issued by Towd Point Mortgage Trust 2020-2 (TPMT 2020-2 or the Trust) as follows:

-- $772.4 million Class A1A1 at AAA (sf)
-- $136.3 million Class A1A2 at AAA (sf)
-- $52.8 million Class A1B at AAA (sf)
-- $60.2 million Class A2 at AA (sf)
-- $45.4 million Class M1 at A (sf)
-- $34.4 million Class M2 at BBB (sf)
-- $25.8 million Class B1 at BB (sf)
-- $23.3 million Class B2 at B (sf)
-- $961.6 million Class A1 at AAA (sf)
-- $908.8 million Class A1A at AAA (sf)
-- $60.2 million Class A2A at AA (sf)
-- $60.2 million Class A2AX at AA (sf)
-- $60.2 million Class A2B at AA (sf)
-- $60.2 million Class A2BX at AA (sf)
-- $45.4 million Class M1A at A (sf)
-- $45.4 million Class M1AX at A (sf)
-- $45.4 million Class M1B at A (sf)
-- $45.4 million Class M1BX at A (sf)
-- $34.4 million Class M2A at BBB (sf)
-- $34.4 million Class M2AX at BBB (sf)
-- $34.4 million Class M2B at BBB (sf)
-- $34.4 million Class M2BX at BBB (sf)
-- $1.0 billion Class A3 at AA (sf)
-- $1.1 billion Class A4 at A (sf)
-- $1.1 billion Class A5 at BBB (sf)

Classes A2AX, A2BX, M1AX, M1BX, M2AX, and M2BX are interest-only notes. The class balances represent a notional amount.

Classes A1, A1A, A2A, A2AX, A2B, A2BX, M1A, M1AX, M1B, M1BX, M2A, M2AX, M2B, M2BX, A3, A4, and A5 are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect 21.70% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 16.80%, 13.10%, 10.30%, 8.20%, and 6.30% 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 seasoned performing and reperforming primarily first-lien mortgages funded by the issuance of the Notes. The Notes are backed by 7,358 loans with a total principal balance of $1,228,047,667 as of the Statistical Calculation Date (February 29, 2020).

The portfolio is approximately 161 months seasoned and contains 97.8% modified loans. The modifications happened more than two years ago for 95.3% of the modified loans. Within the pool, 2,280 mortgages have non-interest-bearing deferred amounts, which equate to approximately 7.3% of the total principal balance. There are no Home Affordable Modification Program (HAMP) and proprietary principal forgiveness amounts included in the deferred amounts.

As of the Statistical Calculation Date, 93.1% of the pool is current, 5.6% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 1.3% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 75.0% 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 one loan in the pool is exempt from the Consumer Financial Protection Bureau (CFPB) Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. This loan is subject to the ATR rules and is designated as Non-QM.

FirstKey Mortgage, LLC (FirstKey) will acquire the loans from various transferring trusts on or prior to the Closing Date. The transferring trusts acquired the mortgage loans between July 2017 and March 2020 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 a majority-owned affiliate, 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. These loans were originated and previously serviced by various entities through purchases in the secondary market.

The loans will be serviced by Select Portfolio Servicing, Inc. (SPS; 97.9%) and Specialized Loan Servicing LLC (SLS; 2.1%). The initial aggregate servicing fee for the TPMT 2020-2 portfolio will be 0.1538% per year, 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 will not be any advancing of delinquent principal or interest on any mortgages by the servicers or any other party to the transaction; however, the servicers are obligated to make 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. Bulk sales require an asset sale price to at least equal a minimum reserve amount of the product of (1) 65.26% and (2) 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 meets a minimum price.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-off Date, the majority representative as appointed by the holder(s) of more than 50% of the notional amount of the Class X Certificates or their affiliates 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 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 A1A1, A1A2, A1B, and A2 Notes are retired.

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

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For this transaction, DBRS Morningstar applied additional stresses to its rating analysis, as described in the Cash Flow Analysis section of the related report.

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@dbrsmorningstar.com.

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

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