DBRS Morningstar Finalizes Its Provisional Ratings on Towd Point Mortgage Trust 2021-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Asset-Backed Securities, Series 2021-1 (the Notes) issued by Towd Point Mortgage Trust 2021-1 (TPMT 2021-1 or the Trust) as follows:

-- $357.0 million Class A1 at AAA (sf)
-- $39.8 million Class A2 at AAA (sf)
-- $24.8 million Class M1 at A (high) (sf)
-- $19.6 million Class M2 at BBB (high) (sf)
-- $14.5 million Class B1 at BB (high) (sf)
-- $11.4 million Class B2 at BB (low) (sf)
-- $17.6 million Class B3 at B (sf)
-- $396.8 million Class A3 at AAA (sf)
-- $421.6 million Class A4 at A (high) (sf)
-- $441.3 million Class A5 at BBB (high) (sf)
-- $357.0 million Class A1A at AAA (sf)
-- $357.0 million Class A1AX at AAA (sf)
-- $357.0 million Class A1B at AAA (sf)
-- $357.0 million Class A1BX at AAA (sf)
-- $39.8 million Class A2A at AAA (sf)
-- $39.8 million Class A2AX at AAA (sf)
-- $39.8 million Class A2B at AAA (sf)
-- $39.8 million Class A2BX at AAA (sf)
-- $24.8 million Class M1A at A (high) (sf)
-- $24.8 million Class M1AX at A (high) (sf)
-- $24.8 million Class M1B at A (high) (sf)
-- $24.8 million Class M1BX at A (high) (sf)
-- $19.6 million Class M2A at BBB (high) (sf)
-- $19.6 million Class M2AX at BBB (high) (sf)
-- $19.6 million Class M2B at BBB (high) (sf)
-- $19.6 million Class M2BX at BBB (high) (sf)
-- $14.5 million Class B1A at BB (high) (sf)
-- $14.5 million Class B1AX at BB (high) (sf)
-- $14.5 million Class B1B at BB (high) (sf)
-- $14.5 million Class B1BX at BB (high) (sf)
-- $11.4 million Class B2A at BB (low) (sf)
-- $11.4 million Class B2AX at BB (low) (sf)
-- $11.4 million Class B2B at BB (low) (sf)
-- $11.4 million Class B2BX at BB (low) (sf)
-- $17.6 million Class B3A at B (sf)
-- $17.6 million Class B3AX at B (sf)
-- $17.6 million Class B3B at B (sf)
-- $17.6 million Class B3BX at B (sf)

Classes A1AX, A1BX, A2AX, A2BX, M1AX, M1BX, M2AX, M2BX, B1AX, B1BX, B2AX, B2BX, B3AX, and B3BX are interest-only (IO) notes. The class balances represent notional amounts.

Classes A1A, A1AX, A1B, A1BX, A2A, A2AX, A2B, A2BX, M1A, M1AX, M1B, M1BX, M2A, M2AX, M2B, M2BX, B1A, B1AX, B1B, B1BX, B2A, B2AX, B2B, B2BX, B3A, B3AX, B3B, and B3BX are exchangeable notes. These classes can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) rating on the Notes reflects 23.20% of credit enhancement provided by subordinated certificates. The A (high) (sf), BBB (high) (sf), BB (high) (sf), BB (low) (sf), and B (sf) ratings reflect 18.40%, 14.60%, 11.80%, 9.60%, and 6.20% 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 predominantly seasoned performing and reperforming primarily first-lien mortgages funded by the issuance of asset-backed notes (the Notes). The Notes are backed by 6,526 loans with a total principal balance $516,696,726 as of the Cut-Off Date (October 31, 2021).

The Notes are backed by 6,659 loans with a total principal balance $528,227,587 as of the Statistical Calculation Date (September 30, 2021). Unless specified otherwise, all the statistics regarding the mortgage loans in this report are based on the Statistical Calculation Date.

The portfolio is approximately 152 months seasoned, of which 16.6% (393 loans) are 24 months or less seasoned with prime-like characteristics. DBRS Morningstar analyzed these loans separately in order to properly assess the risks in the more seasoned portion of the aggregate pool. The portfolio contains 55.5% modified loans, and modifications happened more than two years ago for 73.5% of the modified loans. Within the pool, 2,796 mortgages, equating to approximately 5.7% of the total principal balance, have non-interest-bearing deferred amounts There are no HAMP and proprietary principal forgiveness amounts included in the deferred amounts.

In addition, approximately 28.3% of the Mortgage Loans are pre-funded and, as a result, these loans will not contribute to the Trust until November 22, 2021 (five days after the closing date). These mortgages were included in the pool and cash flow analyses performed by DBRS Morningstar. On the Closing Date, the Depositor will create a pre-funding reserve account to fund the additional mortgage loans and a capitalized interest reserve account to cover potential interest shortfall associated with the pre-funded loans for the December 2021 payment date.

As of the Statistical Calculation Date, 95.0% of the pool is current and 3.8% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method. Additionally, 1.2% of the pool is in bankruptcy (all non-Coronavirus Disease (COVID-19) bankruptcy loans are performing or 30 days delinquent). Approximately 60.0% 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 or 0 x 30 since origination for loans less than 24 months seasoned.

The majority of the pool (80.3%) is exempt from the Consumer Financial Protection Bureau (CFPB) Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. The loans subject to the ATR rules are designated as QM Safe Harbor (16.3%), QM Rebuttable Presumption (1.4%), and Non-QM (2.1%) by UPB.

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 December 2013 and October 2021 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.

As of the related servicing transfer date (on or about November 30, 2021), the loans will be serviced by Select Portfolio Servicing, Inc. (SPS; 61.1%), Carrington Mortgage Services, LLC (CMS; 32.9%), and Specialized Loan Servicing LLC (SLS; 6.0%). The CMS, SPS, and SLS aggregate servicing fee rate for each payment date is 0.57%, 0.19%, and 0.35% per annum, respectively.

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 certain 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) 66.64% 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) 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 A1 and A2 Notes are retired.

Coronavirus Impact
The coronavirus pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. Shortly after the onset of the pandemic, DBRS Morningstar saw an increase in delinquencies for many residential mortgage-backed securities (RMBS) asset classes.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term periods of payment relief that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forbear mortgage payments was widely available, driving forbearances to an elevated level. When the dust settled, loans with coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending downwards, as forbearance periods come to an end for many borrowers.

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 "Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 2021.

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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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