DBRS Morningstar Assigns Ratings to GS Mortgage-Backed Securities Trust 2021-RPL1

DBRS, Inc. (DBRS Morningstar) assigned ratings to the following Mortgaged-Backed Securities, Series 2021-RPL1 (the Notes) issued by GS Mortgage-Backed Securities Trust 2021-RPL1 (GSMBS 2021-RPL1 or the Trust):

-- $225.1 million Class A-1 at AAA (sf)
-- $23.8 million Class A-2 at AA (sf)
-- $248.9 million Class A-3 at AA (sf)
-- $268.6 million Class A-4 at A (sf)
-- $288.5 million Class A-5 at BBB (sf)
-- $19.7 million Class M-1 at A (sf)
-- $19.9 million Class M-2 at BBB (sf)
-- $11.0 million Class B-1 at BB (sf)
-- $11.2 million Class B-2 at B (sf)

The Class A-3, A-4, and A-5 Notes are exchangeable. 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 38.45% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 31.95%, 26.55%, 21.10%, 18.10%, and 15.05% 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 seasoned performing and reperforming, primarily first-lien residential mortgages funded by the issuance of mortgage-backed notes (the Notes). The Notes are backed by 2,080 loans with a total principal balance of $384,955,718 as of the Cut-Off Date (February 28, 2021).

The portfolio is approximately 169 months seasoned and contains 82.9% modified loans. The modifications happened more than two years ago for 73.1% of the modified loans. Within the pool, 904 mortgages have noninterest-bearing deferred amounts, which equate to approximately 10.5% of the total principal balance. There are no HAMP and proprietary principal forgiveness amounts included in the deferred amounts.

As of the Cut-Off Date, 95.3% of the loans in the pool are current. Approximately 4.7% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method and 1.8% is in bankruptcy (all bankruptcy loans are performing or 30 days delinquent). Approximately 43.7% 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.

The majority of the pool (96.7%) is exempt from the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules because the loans were originated prior to January 10, 2014, the date on which the rules became applicable . The loans subject to the ATR rules were treated as Non-QM (3.3%).

The Mortgage Loan Sellers, Goldman Sachs Mortgage Company (GSMC; 82.9% of the loans) and MTGLQ Investors, L.P. (17.1% of the loans), acquired the mortgage loans in various transactions prior to the Closing Date from various mortgage loan sellers or from an affiliate, GS Mortgage Securities Corp. (the Depositor), which will contribute the loans to the Trust. These loans were originated and previously serviced by various entities through purchases in the secondary market.

As the Retaining Sponsor, GSMC, or a majority-owned affiliate, will retain an eligible vertical interest in the transaction consisting of an uncertificated interest (the Retained Interest) in the Trust representing the right to receive at least 5.0% of the amounts collected on the mortgage loans, net of the Trust's fees, expenses, and reimbursements and paid on the Notes (other than the Class R Notes) and the Retained Interest to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The loans will be serviced by Select Portfolio Servicing, Inc. (SPS; 100%). The initial aggregate servicing fee for the GSMBS 2021-RPL1 portfolio will be 0.25% per annum. Approximately 0.3% of the pool will be initially serviced by an interim servicer and transferred to SPS for servicing on March 17, 2021.

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 to the preservation, inspection, restoration, protection, and repair of a mortgaged property, which includes delinquent tax and insurance payments, the enforcement or judicial proceedings associated with a mortgage loan, and the management and liquidation of properties (to the extent that the Servicer deems such advances recoverable).

When the aggregate pool balance of the mortgage loans is reduced to less than 25% of the Cut-Off Date balance, the Controlling Noteholder will have the option to purchase all remaining loans and other property of the Issuer at a specified minimum price. The Controlling Noteholder will be the beneficial owner of more than 50% the Class B-5 Notes (if no longer outstanding the next most subordinate Class of Notes, other than Class X).

As a loss mitigation alternative, the Controlling Noteholder may direct the Servicer to sell mortgage loans that are 90 days or more delinquent under the MBA delinquency method to unaffiliated third-party investors in the secondary whole-loan market on arms-length terms and at fair market value to maximize proceeds on such loans on a net present value basis.

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 the Class M-1 Notes and more subordinate bonds will not be paid from principal proceeds until the more senior classes are retired. Excess interest can be used to amortize principal of the notes after paying transaction parties' fees, Net WAC shortfalls, and making deposits on to the breach reserve account.

CORONAVIRUS IMPACT – REPERFORMING LOAN (RPL)
The Coronavirus Disease (COVID-19) pandemic 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 continue to rise in the coming months for many residential mortgage-backed securities (RMBS) asset classes.

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, DBRS Morningstar has seen increased delinquencies and loans on forbearance plans and expects a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affects 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 connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: March 2021 Update,” published on March 17, 2021), for the RPL asset class DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than it previously used. DBRS Morningstar derives such MVD assumptions through a fundamental home price approach based on the forecasted unemployment rates and GDP growth outlined in the moderate scenario. In addition, for pools with loans on forbearance plans, DBRS Morningstar may assume higher loss expectations above and beyond the coronavirus assumptions. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

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 that loans which were previously delinquent, recently modified, or have higher updated loan-to-value ratios (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 difficulty in fulfilling payment obligations in the past and may revert to spotty payment patterns in the near term. Higher LTV borrowers with lower equity in their properties generally have fewer refinance opportunities and, therefore, slower prepayments.

In addition, for this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, 237 borrowers (13.7% of the borrowers by balance) either have completed forbearance plans or are on forbearance plans because the borrowers reported financial hardship related to the coronavirus pandemic. These forbearance plans allow temporary payment holidays, followed by repayment once the forbearance period ends. The Servicer, in collaboration with the Sponsor, is generally offering borrowers a three-month payment forbearance plan. Beginning in month four, the borrower can repay all or some of the missed mortgage payments at once, deferring the unpaid missed payments, or opt to go on a repayment plan to catch up on missed payments for several, typically six, months. During the repayment period, the borrower needs to make regular payments and additional amounts to catch up on the missed payments. For the Sponsor’s approach to forbearance loans, the Servicer would attempt to contact the borrowers before the expiration of the forbearance period and evaluate the borrowers' capacity to repay the missed amounts. As a result, the Servicer, in collaboration with the Sponsor, may offer an extension of the forbearance period, repayment plan, or other forms of payment relief, such as deferrals of the unpaid principal and interest (P&I) amounts or a loan modification, in addition to pursuing other loss mitigation options.

For this transaction, DBRS Morningstar applied additional assumptions to evaluate the impact of potential cash flow disruptions on the rated tranches, stemming from (1) lower P&I collections and (2) no servicing advances on delinquent P&I. These assumptions include:

(1) Increased delinquencies for the first 12 months at the AAA (sf) and AA (sf) rating levels,
(2) Increased delinquencies for the first nine months at the A (sf) and below rating levels,
(3) No voluntary prepayments for the first 12 months for the AAA (sf) and AA (sf) rating levels,
(4) No liquidation recovery for the first 12 months for the AAA (sf) and AA (sf) rating levels.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: “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: March 2021 Update,” dated March 17, 2021.

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 are detailed in the related rating report.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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 (April 1, 2020), 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.

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