DBRS Morningstar Finalizes Provisional Ratings on OBX 2021-INV3 Trust

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage-Backed Notes, Series 2021-INV3 (the Notes) issued by OBX 2021-INV3 Trust (OBX 2021-INV3):

-- $400.0 million Class A-1 at AAA (sf)
-- $400.0 million Class A-2 at AAA (sf)
-- $312.0 million Class A-3 at AAA (sf)
-- $312.0 million Class A-4 at AAA (sf)
-- $88.0 million Class A-5 at AAA (sf)
-- $88.0 million Class A-6 at AAA (sf)
-- $234.0 million Class A-7 at AAA (sf)
-- $234.0 million Class A-8 at AAA (sf)
-- $249.6 million Class A-9 at AAA (sf)
-- $249.6 million Class A-10 at AAA (sf)
-- $88.0 million Class A-11 at AAA (sf)
-- $88.0 million Class A-11IO at AAA (sf)
-- $15.6 million Class A-12 at AAA (sf)
-- $15.6 million Class A-13 at AAA (sf)
-- $78.0 million Class A-14 at AAA (sf)
-- $78.0 million Class A-15 at AAA (sf)
-- $62.4 million Class A-16 at AAA (sf)
-- $62.4 million Class A-17 at AAA (sf)
-- $40.0 million Class A-18 at AAA (sf)
-- $40.0 million Class A-19 at AAA (sf)
-- $40.0 million Class A-20 at AAA (sf)
-- $440.0 million Class A-21 at AAA (sf)
-- $440.0 million Class A-22 at AAA (sf)
-- $343.2 million Class A-23 at AAA (sf)
-- $343.2 million Class A-24 at AAA (sf)
-- $440.0 million Class A-IO1 at AAA (sf)
-- $312.0 million Class A-IO4 at AAA (sf)
-- $88.0 million Class A-IO5 at AAA (sf)
-- $88.0 million Class A-IO6 at AAA (sf)
-- $234.0 million Class A-IO8 at AAA (sf)
-- $249.6 million Class A-IO10 at AAA (sf)
-- $15.6 million Class A-IO13 at AAA (sf)
-- $78.0 million Class A-IO15 at AAA (sf)
-- $62.4 million Class A-IO17 at AAA (sf)
-- $40.0 million Class A-IO20 at AAA (sf)
-- $40.0 million Class A-IO21 at AAA (sf)
-- $343.2 million Class A-IO24 at AAA (sf)
-- $6.4 million Class B-1A at A (high) (sf)
-- $6.4 million Class B-1 at A (high) (sf)
-- $6.4 million Class B-IO1 at A (high) (sf)
-- $6.1 million Class B-2A at A (sf)
-- $6.1 million Class B-2 at A (sf)
-- $6.1 million Class B-IO2 at A (sf)
-- $5.9 million Class B-3A at BBB (sf)
-- $5.9 million Class B-3 at BBB (sf)
-- $5.9 million Class B-IO3 at BBB (sf)
-- $5.9 million Class B-4 at BB (high) (sf)
-- $1.9 million Class B-5 at B (sf)

Classes A-IO1, A-IO4, A-IO5, A-IO6, A-IO8, A-IO10, A-11IO, A-IO13, A-IO15, A-IO17, A-IO20, A-IO21, A-IO24, B-IO1, B-IO2, and B-IO3 are interest-only notes. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-9, A-10, A-12, A-14, A-15, A-16, A-18, A-19, A-21, A-22, A-23, A-24, A-IO4, A-IO5, A-IO6, A-IO10, A-IO15, A-IO24, B-1A, B-2A, and B-3A are exchangeable notes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-16, and A-17 are super senior notes. These classes benefit from additional protection from senior support notes (Classes A-18, A-19, and A-20) with respect to loss allocation.

The AAA (sf) ratings on the Notes reflect 6.50% of credit enhancement provided by subordinated notes. The A (high) (sf), A (sf), BBB (sf), BB (high) (sf), and B (sf) ratings reflect 5.15%, 3.85%, 2.60%, 1.35%, and 0.95% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

This securitization is a portfolio of primarily first-lien, fixed-rate, agency-eligible prime conventional investment-property residential mortgages funded by the issuance of the Notes. The Notes are backed by 1,301 loans with a total principal balance of $470,576,068 as of the Cut-Off Date (November 1, 2021).

The pool consists of fully amortizing fixed-rate mortgages (FRMs) with original terms to maturity of primarily 30 years and a weighted-average (WA) loan age of five months. All but eight loans in the pool have original terms to maturity of 30 years. All but two loans were made to investors for business purposes and, consequently, are not subject to the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) and Ability-to-Repay (ATR) Rules (QM/ATR Rules). In addition, 54 borrowers have multiple mortgages (120 loans in total) included in the securitized portfolio, which comprises 10.1% of the pool by current balance.

OBX 2021-INV3 comprises 98.9% agency-eligible, conforming loans and 1.1% non-agency-eligible mortgage loans due to loan balances that exceeded agency limits, but agency-eligible based on all other underwriting characteristics. Additionally, all loans in the portfolio were underwritten using an automated underwriting system (AUS) designated by Fannie Mae or Freddie Mac. Details on the underwriting of conforming loans can be found in the related Presale Report.

The originators for the aggregate mortgage pool are Rocket Mortgage, LLC (32.3%), Caliber Home Loans, Inc. (17.0%), and various other originators, each comprising no more than 15% of the pool by principal balance. Select Portfolio Servicing, Inc. (67.8%) and NewRez LLC doing business as Shellpoint Mortgage Servicing (32.2%) will service the mortgage loans.

Onslow Bay Financial LLC is the Seller, Sponsor, and P&I Advancing Party for the transaction. Wells Fargo Bank, N.A. will act as Master Servicer, Paying Agent, Note Registrar, and Custodian. Wilmington Savings Fund Society, FSB will serve as Indenture Trustee and Owner Trustee.

The P&I Advancing Party will be responsible for advancing delinquent monthly scheduled payments of interest and principal (P&I Advances), including advances on coronavirus-related forbearance plans, until such loans become 120 days delinquent, to the extent such P&I Advances are recoverable by the related Servicer. P&I Advances will be made from amounts on deposit for future distribution, the excess servicing strip fee that would otherwise be allocable to the Class A-IO-S Notes and the P&I Advancing Party fee and, if such amounts are insufficient to make such P&I Advances, the P&I Advancing Party will be responsible for any remaining amounts necessary to make all such P&I Advances.

Each Servicer will be required to make servicing advances with respect to the preservation, inspection, restoration, protection and repair of a mortgaged property, including 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 such advances are deemed recoverable by the related Servicer.

On any Payment Date on which the aggregate stated principal balance of the mortgage loans is less than or equal to 10% of the aggregate stated principal balance of the mortgage loans as of the Cut-Off Date, the Depositor will have the option to purchase all the loans for the termination price, or if the Depositor elects not to exercise its purchase option, then on any Payment Date on which the aggregate stated principal balance of the mortgage loans has declined to less than or equal to 5% of the aggregate stated principal balance of the mortgage loans as of the Cut-Off Date, the Master Servicer will have the option to purchase all the loans and real estate owned (REO) properties for the termination price, thereby causing an early retirement of the Notes.

The Seller will have the option, but not the obligation, to repurchase any mortgage loan that becomes 60 or more days delinquent under the Mortgage Bankers Association (MBA) delinquency method or REO property, provided that such repurchase will occur at the optional repurchase price and that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Seller intends to retain (directly or through a majority-owned affiliate) a horizontal residual interest in 5% of the fair value of all the Notes issued by the Issuer (other than the Class R Notes) and the trust certificate to satisfy the credit risk retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a pre-crisis structure.

For this transaction, 66 loans (5.3% of the pool by balance) are in counties designated by the Federal Emergency Management Agency (FEMA) as having been affected by a natural disaster, not related to the coronavirus, as of November 1, 2021. The Seller has made representations and warranties to the effect that, in general, each mortgaged property is undamaged.

CORONAVIRUS PANDEMIC 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 the 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 differently from traditional delinquencies. At the onset of the pandemic, the option to forebear 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 in recent months, delinquencies have been gradually trending downward as forbearance periods come to an end for many borrowers.

As of the Cut-Off Date, there are no loans that are subject to an active coronavirus-related forbearance plan with the Servicer. Two loans (0.1% of the pool by principle balance) had previously entered into a coronavirus-related forbearance plan with the related Servicer. Any loan that enters into a coronavirus-related forbearance plan after the Cut-Off Date and prior to or on the Closing Date will be repurchased within 30 days of the Closing Date. Loans that enter into a coronavirus-related forbearance plan after the Closing Date will remain in the pool.

For more information regarding the economic stress assumed under its baseline scenario, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 2021.

The ratings reflect transactional strengths that include the following:
-- High-quality credit attributes,
-- Well-qualified borrowers,
-- Satisfactory third-party due-diligence review,
-- Structural enhancements, and
-- 100% current loans.

The transaction also includes the following challenges:
-- 99.8% investor properties and certain borrowers with multiple mortgages in the securitized pool,
-- R&W framework,
-- Entities’ lack of financial strength or securitization history, and
-- Advances of delinquent P&I.

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

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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