DBRS Morningstar Assigns New Ratings and Finalizes Provisional Ratings on New Residential Mortgage Loan Trust 2020-2

DBRS, Inc. (DBRS Morningstar) assigned new ratings to the following classes of Mortgage-Backed Notes, Series 2020-2 (the Notes) issued by New Residential Mortgage Loan Trust 2020-2 (NRMLT 2020-2 or the Trust):

-- $336.9 million Class A-1S at AAA (sf)
-- $37.3 million Class A-1M at AAA (sf)
-- $336.9 million Class A1-IOS at AAA (sf)
-- $37.3 million Class A1-IOM at AAA (sf)
-- $374.2 million Class A-1D at AAA (sf)
-- $374.2 million Class A-1E at AAA (sf)
-- $374.2 million Class A-1F at AAA (sf)
-- $374.2 million Class A-1G at AAA (sf)
-- $374.2 million Class A1-IOD at AAA (sf)
-- $374.2 million Class A1-IOE at AAA (sf)
-- $374.2 million Class A1-IOF at AAA (sf)
-- $374.2 million Class A1-IOG at AAA (sf)
-- $13.3 million Class B-1E at AA (sf)
-- $13.3 million Class B-1F at AA (sf)
-- $13.3 million Class B-1G at AA (sf)
-- $13.3 million Class B-1H at AA (sf)
-- $13.3 million Class B1-IOD at AA (sf)
-- $13.3 million Class B1-IOE at AA (sf)
-- $13.3 million Class B1-IOF at AA (sf)
-- $13.3 million Class B1-IOG at AA (sf)
-- $14.6 million Class B-2E at A (sf)
-- $14.6 million Class B-2F at A (sf)
-- $14.6 million Class B-2G at A (sf)
-- $14.6 million Class B-2H at A (sf)
-- $14.6 million Class B2-IOD at A (sf)
-- $14.6 million Class B2-IOE at A (sf)
-- $14.6 million Class B2-IOF at A (sf)
-- $14.6 million Class B2-IOG at A (sf)
-- $14.6 million Class B-3D at BBB (sf)
-- $14.6 million Class B-3E at BBB (sf)
-- $14.6 million Class B-3F at BBB (sf)
-- $14.6 million Class B-3G at BBB (sf)
-- $14.6 million Class B-3H at BBB (sf)
-- $14.6 million Class B3-IOD at BBB (sf)
-- $14.6 million Class B3-IOE at BBB (sf)
-- $14.6 million Class B3-IOF at BBB (sf)
-- $14.6 million Class B3-IOG at BBB (sf)
-- $10.8 million Class B-4D at BB (sf)
-- $10.8 million Class B-4E at BB (sf)
-- $10.8 million Class B-4F at BB (sf)
-- $10.8 million Class B-4G at BB (sf)
-- $10.8 million Class B-4H at BB (sf)
-- $10.8 million Class B4-IO at BB (sf)
-- $10.8 million Class B4-IOD at BB (sf)
-- $10.8 million Class B4-IOE at BB (sf)
-- $10.8 million Class B4-IOF at BB (sf)
-- $10.8 million Class B4-IOG at BB (sf)

DBRS Morningstar finalized its provisional ratings to the following Notes issued by the Trust:

-- $374.2 million Class A-1 at AAA (sf)
-- $374.2 million Class A1-IO at AAA (sf)
-- $374.2 million Class A-1A at AAA (sf)
-- $374.2 million Class A-1B at AAA (sf)
-- $374.2 million Class A-1C at AAA (sf)
-- $374.2 million Class A1-IOA at AAA (sf)
-- $374.2 million Class A1-IOB at AAA (sf)
-- $374.2 million Class A1-IOC at AAA (sf)
-- $374.2 million Class A-2 at AAA (sf)
-- $387.4 million Class A-3 at AA (sf)
-- $402.0 million Class A-4 at A (sf)
-- $387.4 million Class A-5 at AA (sf)
-- $402.0 million Class A-6 at A (sf)
-- $402.0 million Class IO at A (sf)
-- $13.3 million Class B-1 at AA (sf)
-- $13.3 million Class B1-IO at AA (sf)
-- $13.3 million Class B-1A at AA (sf)
-- $13.3 million Class B-1B at AA (sf)
-- $13.3 million Class B-1C at AA (sf)
-- $13.3 million Class B-1D at AA (sf)
-- $13.3 million Class B1-IOA at AA (sf)
-- $13.3 million Class B1-IOB at AA (sf)
-- $13.3 million Class B1-IOC at AA (sf)
-- $14.6 million Class B-2 at A (sf)
-- $14.6 million Class B2-IO at A (sf)
-- $14.6 million Class B-2A at A (sf)
-- $14.6 million Class B-2B at A (sf)
-- $14.6 million Class B-2C at A (sf)
-- $14.6 million Class B-2D at A (sf)
-- $14.6 million Class B2-IOA at A (sf)
-- $14.6 million Class B2-IOB at A (sf)
-- $14.6 million Class B2-IOC at A (sf)
-- $27.8 million Class B-IO at A (sf)
-- $14.6 million Class B-3 at BBB (sf)
-- $14.6 million Class B3-IO at BBB (sf)
-- $14.6 million Class B-3A at BBB (sf)
-- $14.6 million Class B-3B at BBB (sf)
-- $14.6 million Class B-3C at BBB (sf)
-- $14.6 million Class B3-IOA at BBB (sf)
-- $14.6 million Class B3-IOB at BBB (sf)
-- $14.6 million Class B3-IOC at BBB (sf)
-- $10.8 million Class B-4 at BB (sf)
-- $10.8 million Class B-4A at BB (sf)
-- $10.8 million Class B-4B at BB (sf)
-- $10.8 million Class B-4C at BB (sf)
-- $10.8 million Class B4-IOA at BB (sf)
-- $10.8 million Class B4-IOB at BB (sf)
-- $10.8 million Class B4-IOC at BB (sf)
-- $6.1 million Class B-5 at B (sf)
-- $6.1 million Class B-5A at B (sf)
-- $6.1 million Class B-5B at B (sf)
-- $6.1 million Class B-5C at B (sf)
-- $6.1 million Class B-5D at B (sf)
-- $6.1 million Class B5-IOA at B (sf)
-- $6.1 million Class B5-IOB at B (sf)
-- $6.1 million Class B5-IOC at B (sf)
-- $6.1 million Class B5-IOD at B (sf)
-- $16.8 million Class B-7 at B (sf)

Classes A1-IO, A1-IOA, A1-IOB, A1-IOC, A1-IOD, A1-IOE, A1-IOF, A1-IOG, A1-IOS, A1-IOM, IO, B1-IO, B1-IOA, B1-IOB, B1-IOC, B1-IOD, B1-IOE, B1-IOF, B1-IOG, B2-IO, B2-IOA, B2-IOB, B2-IOC, B2-IOD, B2-IOE, B2-IOF, B2-IOG, B-IO, B3-IO, B3-IOA, B3-IOB, B3-IOC, B3-IOD, B3-IOE, B3-IOF, B3-IOG, B4-IO, B4-IOA, B4-IOB, B4-IOC, B4-IOD, B4-IOE, B4-IOF, B4-IOG, B5-IOA, B5-IOB, B5-IOC, and B5-IOD are interest-only notes. The class balances represent notional amounts.

Classes A-1S, A-1M, A-1A, A-1B, A-1C, A-1D, A-1E, A-1F, A-1G, A1-IOA, A1-IOB, A1-IOC, A1-IOD, A1-IOE, A1-IOF, A1-IOG, A1-IOS, A1-IOM, A-2, A-3, A-4, A-5, A-6, B-1A, B-1B, B-1C, B-1D, B-1E, B-1F, B-1G, B-1H, B1-IOA, B1-IOB, B1-IOC, B1-IOD, B1-IOE, B1-IOF, B1-IOG, B-2A, B-2B, B-2C, B-2D, B-2E, B-2F, B-2G, B-2H, B2-IOA, B2-IOB, B2-IOC, B2-IOD, B2-IOE, B2-IOF, B2-IOG, B-IO, B-3A, B-3B, B-3C, B-3D, B-3E, B-3F, B-3G, B-3H, B3-IOA, B3-IOB, B3-IOC, B3-IOD, B3-IOE, B3-IOF, B3-IOG, B-4A, B-4B, B-4C, B-4D, B-4E, B-4F, B-4G, B-4H, B4-IOA, B4-IOB, B4-IOC, B4-IOD, B4-IOE, B4-IOF, B4-IOG, B-5A, B-5B, B-5C, B-5D, B5-IOA, B5-IOB, B5-IOC, B5-IOD, and B-7 are exchangeable notes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

The AAA (sf) ratings on the Notes reflect 16.70% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 13.75%, 10.50%, 7.25%, 4.85%, and 3.50% 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 seasoned portfolio of performing and reperforming first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 4,090 loans with a total principal balance of $449,189,814 as of the Cut-Off Date (April 1, 2020).

The loans are significantly seasoned, with a weighted-average age of 187 months. As of the Cut-Off Date, 92.9% of the pool is current, 6.7% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 0.4% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 67.2% and 77.1% of the mortgage loans have been zero times 30 days delinquent (0 x 30) for the past 24 months and 12 months, respectively, under the MBA delinquency method.

The portfolio contains 5.0% modified loans. The modifications happened more than two years ago for 88.3% of the modified loans. All but three loans are exempt from the Consumer Financial Protection Bureau’s ability-to-repay/qualified mortgage rules because of loan seasoning.

The Seller, NRZ Sponsor IX LLC (NRZ), acquired the loans prior to the Closing Date in connection with the termination of various securitization trusts and whole loan purchases. Upon acquiring the loans, NRZ, through an affiliate, New Residential Funding 2020-2 LLC (the Depositor), will contribute the loans to the Trust. As the Sponsor, New Residential Investment Corp., through a majority-owned affiliate, will acquire and retain a 5% eligible vertical interest in each class of securities to be issued (other than the residual notes) 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, 49.4% of the pool is serviced by Nationstar Mortgage LLC (Nationstar) doing business as (dba) Mr. Cooper Group, Inc., 37.5% by PHH Mortgage Corporation, 6.9% by NewRez LLC dba Shellpoint Mortgage Servicing (SMS), 4.0% by Wells Fargo Bank, and 2.1% by Select Portfolio Servicing. Nationstar will also act as the Master Servicer, and SMS will act as the Special Servicer.

The Seller will have the option to repurchase any loan that becomes 60 or more days delinquent under the MBA method or any real estate owned property acquired in respect of a mortgage loan at a price equal to the principal balance of the loan (Optional Repurchase Price), provided that such repurchases will be limited to 10% of the principal balance of the mortgage loans as of the Cut-Off Date.

Unlike other seasoned reperforming loan (RPL) securitizations, the Servicers in this transaction will advance principal and interest on delinquent mortgages to the extent such advances are deemed recoverable. The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a pre-crisis structure.

The Coronavirus Disease (COVID-19) and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may arise in the coming months for many residential mortgage-backed securities (RMBS) asset classes, some meaningfully.

RPL is a traditional RMBS asset class that consists of securitizations backed by pools of seasoned performing and reperforming residential home loans. Although borrowers in these pools may have experienced delinquencies in the past, the loans have been largely performing for the past six to 24 months since issuance. Generally, these pools are highly seasoned and contain sizable concentrations of previously modified loans.

As a result of the coronavirus pandemic, DBRS Morningstar expects increased delinquencies and loans on forbearance plans, slower voluntary prepayment rates, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affect borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loans.

In conjunction with DBRS Morningstar’s commentary “Global Macroeconomic Scenarios: Implications for Credit Ratings,” published on April 16, 2020, it has updated its baseline stresses (baseline coronavirus stresses) for the RPL asset class that correspond to the moderate macroeconomic scenario outlined in the commentary. The baseline coronavirus stresses include a combination of increased unemployment rates, lower voluntary prepayment rates, and more conservative home price assumptions from the stresses DBRS Morningstar used previously.

In the RPL asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes loans that have been previously delinquent, recently modified, or have higher updated loan-to-values (LTVs) may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with previous delinquencies or recent modifications have exhibited difficulties in fulfilling payment obligations in the past and may revert back to spotty payment patterns in the near term. Higher LTV borrowers, with lower equity in their properties, generally have fewer refinance opportunities and slower prepayments.

When applied to NRMLT 2020-2, the baseline coronavirus stresses resulted in higher expected losses on the collateral pool and correspondingly higher credit enhancement when compared with the assumptions DBRS Morningstar used previously.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases: “DBRS Morningstar Provides Update on Rating Methodologies in Light Of Measures to Contain Coronavirus Disease (COVID-19),” dated March 12, 2020; “DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),” dated March 20, 2020; and “Global Macroeconomic Scenarios: Implications for Credit Ratings,” dated April 16, 2020.

The ratings reflect transactional strengths that include underlying assets with significant seasoning and robust loan attributes such as product types and LTVs.

The transaction employs a relatively weak representations and warranties framework that includes an unrated representation provider (NRZ), certain knowledge qualifiers, and fewer mortgage loan representations relative to DBRS Morningstar’s criteria for seasoned pools.

Although limited, third-party due diligence was performed on the pool for regulatory compliance, data integrity, title/lien, and payment history. The transaction included updated Home Data Index and/or broker price opinions; however, there was no reconciliation on the updated values.

Certain loans have missing assignments or endorsements as of the Closing Date. Given the relatively clean performance history of the mortgages and the operational capability of the Servicers, DBRS Morningstar believes that the risk of impeding or delaying foreclosure is remote.

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

The DBRS Morningstar ratings 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.

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.

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.

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