Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.
The
This transaction is a securitization of a portfolio of fixed- and adjustable-rate nonprime first-lien residential mortgages funded by the issuance of the Mortgage Pass-Through Certificates, Series 2020-NQM1 (the Certificates). The Certificates are backed by 1,168 mortgage loans with a total principal balance of
Subsequent to the issuance of the related Presale Report, there were minimal loan drops and balance updates. The Certificates are backed by 1,177 mortgage loans with a total principal balance of
CSC has three programs under which it originates loans. The Non-Prime and Maggi Plus (Maggi+) products are CSC's core mortgage programs with Maggi+ aimed at higher credit profiles. CSC's Outside Dodd-Frank products include loans exempt from the
Although the applicable mortgage loans were originated to satisfy the CFPB Ability-to-Repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government, or private-label nonagency prime jumbo products for various reasons. In accordance with the Qualified Mortgage (QM)/ATR rules, 66.0% of the loans are designated as non-QM. Approximately 34.0% of the loans are made to investors for business purposes or foreign nationals, which are not subject to the QM/ATR rules.
On or after the earlier of (1) the distribution date in
Different from most non-QM transactions, the Servicer will not fund advances of delinquent principal and interest (P&I) on any mortgage. However, the 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.
In contrast with other non-QM transactions, which employ a fixed coupon for senior bonds (Class A-1, A-2, and A-3), MFA 2020-NQM1's senior bonds are subject to a rate update starting on the distribution date in
The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Certificates as the more senior outstanding Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts due to Class A-1 down to Class B-1.
CORONAVIRUS DISEASE (COVID-19) IMPACT
The coronavirus 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 security (RMBS) asset classes, some meaningfully.
The non-QM sector is a traditional RMBS asset class that consists of securitizations backed by pools of residential home loans that may fall outside of the
As a result of the coronavirus, DBRS Morningstar expects increased delinquencies, loans on forbearance plans, 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 connection with the economic stress assumed under its moderate scenario (see 'Global Macroeconomic Scenarios: July Update,' published on
In the non-QM asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes loans originated to (1) borrowers with recent credit events, (2) self-employed borrowers, or (3) higher loan-to-value (LTV) ratio borrowers may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with prior credit events have exhibited difficulties in fulfilling payment obligations in the past and may revert to spotty payment patterns in the near term. Self-employed borrowers are potentially exposed to more volatile income sources, which could lead to reduced cash flows generated from their businesses. Higher LTV borrowers with lower equity in their properties generally have fewer refinance opportunities and therefore slower prepayments. In addition, certain pools with elevated geographic concentrations in densely populated urban metropolitan statistical areas may experience additional stress from extended lockdown periods and the slowdown of the economy.
In addition, for this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on
For this deal, 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) Increasing delinquencies for the
(2) Increasing delinquencies for the A (sf) and below rating levels for the first nine months,
(3) Applying no voluntary prepayments for the
(4) Delaying the receipt of liquidation proceeds for the
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
The ratings reflect transactional strengths that include the following:
Satisfactory third-party due-diligence review.
Robust loan attributes and pool composition.
Improved underwriting standards.
Compliance with the ATR rules.
The transaction also includes the following challenges:
Borrowers on forbearance plans.
No servicer advances of delinquent P&I.
Representations and warranties framework and providers.
Weaker documentation types.
Foreign borrowers with no FICO score.
Nonprime, non-QM, and investor loans.
The full description of the strengths, challenges, and mitigating factors is detailed in the related rating report.
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
The principal methodology is RMBS Insight 1.3:
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.
Tel. +1 212 806-3277
Ratings
Date Issued Debt Rated Action Rating Trend Issued
i
US =
CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
Unsolicited Participating With Access
Unsolicited Participating Without Access
Unsolicited Non-Participating
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class A-1 Provis.-FinalAAA (sf) -- US
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class A-2 Provis.-Final AA (sf) -- US
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class A-3 Provis.-Final A (sf) -- US
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class M-1 Provis.-Final BBB (sf) -- US
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class B-1 Provis.-Final BB (sf) -- US
03-Sep-20 Mortgage Pass-Through Certificates, Series 2020-NQM1, Class B-2 Provis.-Final B (sf) -- US
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