DBRS Morningstar Assigns Provisional Ratings to TRK 2022-INV2 Trust

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the Mortgage Pass-Through Certificates, Series 2022-INV2 (the Certificates) to be issued by TRK 2022-INV2 Trust (the Issuer) as follows:

-- $136.5 million Class A-1 at AAA (sf)
-- $24.0 million Class A-2 at AA (high) (sf)
-- $31.7 million Class A-3 at A (high) (sf)
-- $18.2 million Class M-1 at BBB (sf)
-- $13.0 million Class B-1 at BB (low) (sf)
-- $10.0 million Class B-2 at B (low) (sf)

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

The AAA (sf) rating on the Class A-1 Certificates reflects 44.20% of credit enhancement provided by subordinate certificates. The AA (high) (sf), A (high) (sf), BBB (sf), BB (low) (sf), and B (low) (sf) ratings reflect 34.40%, 21.45%, 14.00%, 8.70%, and 4.60% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate investor debt service coverage ratio (DSCR), first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 733 mortgage loans with a total principal balance of approximately $244,555,151 as of the Cut-Off Date (April 30, 2022).

The pool consists of the mortgage loans acquired by the Sponsor, Toorak Capital Partners, LLC (Toorak), from various originators. Toorak acquires mortgage loans, including 30-year investor loans based on DSCR, residential and multifamily/mixed-use bridge loans, and construction loans, originated to its proprietary guidelines through a nationwide network of correspondents. The transaction contains mortgage loans from Park Place Finance LLC (Park Place; 12.6%); Beach Park Partners LLC (Beach Park; 10.5%); and other originators, each contributing less than 10% of the pool balance.

DBRS Morningstar conducted a review of Toorak’s residential mortgage platform and believes the company is an acceptable mortgage loan aggregator.

The Servicers are Servis One, Inc., doing business as BSI Financial Services (96.7%), and NewRez LLC, doing business as Shellpoint Mortgage Servicing (3.3%). Nationstar Mortgage LLC will act as the Master Servicer. U.S. Bank Trust Company, National Association (rated AA (high) with a Stable trend by DBRS Morningstar), an affiliate of U.S. Bancorp., will act as the Securities Administrator, Certificate Registrar, and Trustee. U.S. Bank National Association, a national banking association, will act as the Custodian.

The mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile, and the DSCR, where applicable (DSCR Loans). Since the loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s Ability-to-Repay rules and TILA/RESPA Integrated Disclosure rule.

Toorak is the Sponsor and the Servicing Administrator of the transaction. This is the first DBRS Morningstar-rated securitization by the Sponsor. Since 2020, Toorak has issued three securitizations backed by DSCR Loans, totaling approximately $900 million, rated by other Nationally Recognized Statistical Rating Organizations.

The Sponsor and Servicing Administrator are the same entity, and the Depositor, Toorak Depositor, LLC, is its majority-owned affiliate. Also, the Representation and Warranty Provider, TCM Sponsor I, LLC, is a subsidiary of the Sponsor. The Controlling Holder is the majority holder of the Class XS certificates (or majority holders if there is no single majority holder), initially, the Depositor.

The Depositor will retain an eligible horizontal interest consisting of a portion of the Class B-2 Certificates and all of the Class B-3 and Class XS Certificates, representing at least 5% of the aggregate fair value of the Certificates to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure.

On or after the earlier of (1) the distribution date occurring in May 2025 or (2) the date when the aggregate unpaid principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Depositor, at its option, may redeem all of the then-outstanding Certificates at a price equal to the class balances of the related Certificates plus accrued and unpaid interest, including any Cap Carryover Amounts, any post-closing deferred amounts, and any fees, expenses, or other amounts owed to the transaction parties (optional redemption). After such purchase, the Depositor may complete a qualified liquidation, which requires (1) a complete liquidation of assets within the trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.

The Sponsor, at its option, may purchase any mortgage loan that is 60 days or more delinquent under the Mortgage Banker Association method or any real estate owned property at the optional purchase price described in the transaction documents. The total balance of such loans will not exceed 10% of the Cut-Off Date balance. Of note, any such optional repurchase could prevent or delay the occurrence of a Credit Event and affect the timing and amount of principal distributions on the Class A-1, Class A-2, and Class A-3 Certificates.

For this transaction, neither the Servicers nor any other transaction party will fund advances on delinquent principal and interest (P&I) on any mortgage. However, each Servicer is obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties (servicing advances).

Of note, if any Servicer defers or capitalizes the repayment of any amounts owed by a borrower in connection with the borrower's loan modification, the Servicer is entitled to reimburse itself from the excess servicing fee, first, and from principal collections, second, for any previously made and unreimbursed servicing advances related to the capitalized amount at the time of such modification.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). Principal proceeds can be used to cover interest shortfalls on the Class A-1 and Class A-2 Certificates (IIPP) before being applied sequentially to amortize the balances of the senior and subordinated certificates. For the Class A-3 Certificates (only after a Credit Event) and for the mezzanine and subordinate classes of certificates (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior certificates have been paid off in full. The excess spread can be used to cover (1) realized losses and (2) cumulative applied realized loss amounts preceding the allocation of funds to unpaid Cap Carryover Amounts due to the Class A-1 Certificates. Of note, the interest and principal otherwise payable to the Class B-3 Certificates may be used to pay the Class A-1 Cap Carryover Amount after the Class A-1 coupon steps up by 100 basis points on and after the distribution date in June 2026.

Coronavirus Impact
The Coronavirus Disease 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 forbearances 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 downward, as forbearance periods come to an end for many borrowers.

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 March 2022 Update,” dated March 24, 2022.

The ratings reflect transactional strengths that include the following:

-- Improved underwriting standards,
-- Certain loan attributes,
-- Robust pool composition, and
-- Satisfactory third-party due-diligence reviews.

The transaction also includes the following challenges:

-- Investor loans,
-- No servicer advances of delinquent P&I, and
-- Representations and warranties framework.

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 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.

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