DBRS Morningstar Takes Rating Actions on 26 U.S. RMBS Transactions

DBRS, Inc. (DBRS Morningstar) reviewed 79 classes from 26 U.S. residential mortgage-backed security (RMBS) transactions. Of the 79 classes reviewed, DBRS Morningstar confirmed 59 ratings, discontinued 15 ratings, and maintained an Under Review with Negative Implications status for five ratings.

The rating confirmations reflect asset performance and credit-support levels that are consistent with the current ratings. The discontinuations reflect the issuers’ exercise of optional redemptions. The Under Review with Negative Implications status reflects the negative impact of the Coronavirus Disease (COVID-19) pandemic on the bonds. DBRS Morningstar maintained the Under Review with Negative Implications status amid the uncertainty in these transactions’ performance with respect to forbearance and delinquency trends.

DBRS Morningstar’s rating actions are based on the following analytical considerations:

-- Key performance measures as reflected in month-over-month changes in delinquency (including forbearance) percentages, credit enhancement (CE) increases since deal inception, and CE levels relative to 30+ day delinquencies.

-- Offset of mortgage-relief initiatives via direct-to-consumer economic aid, mortgage payment assistance, and foreclosure suspension directives.

-- Elevated economic concerns and more conservative home price assumptions.

As a result of the coronavirus pandemic, 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: March 2021 Update,” published on March 17, 2021), DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than what it previously used. DBRS Morningstar derives such MVD assumptions through a fundamental home price approach based on the forecast unemployment rates and GDP growth outlined in the aforementioned moderate scenario.

The ratings that are confirmed and Under Review with Negative Implications relate to mortgage insurance-linked note (MILN) transactions. The ratings that were confirmed due to an issuer call relate to non-qualified mortgage transactions.

In the MILN asset class, DBRS Morningstar generally believes that loans with layered risk (low FICO score with high loan-to-value ratio/high debt-to-income ratio) may be more sensitive to economic hardships resulting in higher unemployment rates and lower incomes. Additionally, higher delinquencies might cause a longer lockout period or a redirection of principal allocation away from outstanding rated classes because of the failure of performance triggers.

The ratings assigned to the securities listed below differ from the ratings implied by the quantitative model. DBRS Morningstar considers this difference to be a material deviation; however, in this case, the ratings on the subject securities may either reflect additional seasoning being warranted to substantiate a further upgrade or actual deal/tranche performance that is not fully reflected in the projected cash flows/model output. Generally for RMBS transactions, the reporting of recent forbearance-related delinquencies (as opposed to nonforbearance-related delinquencies) in remittance reports has not been consistent and standardized. DBRS Morningstar believes that recent increases in delinquencies mostly reflect forbearances being requested and granted as a result of the coronavirus pandemic. Additionally, DBRS Morningstar believes that forbearance-related delinquencies, especially during the coronavirus pandemic, should have a lower probability of default than nonforbearance-related delinquencies. Because of the lack of standardized reporting, DBRS Morningstar may not be able to appropriately identify delinquencies as a result of forbearance in its loss analysis; therefore, for certain transactions, DBRS Morningstar may have projected significantly higher expected losses using its quantitative model. After reviewing transaction-level performance trends and other analytical considerations outlined in this press release, however, DBRS Morningstar may assign ratings that differ from those implied by the quantitative model, thus resulting in a material deviation.

-- Bellemeade Re 2018-2 Ltd., Series 2018-2 Mortgage Insurance-Linked Notes, Class M-1C
-- Bellemeade Re 2018-2 Ltd., Series 2018-2 Mortgage Insurance-Linked Notes, Class B-1
-- Bellemeade Re 2019-1 Ltd., Series 2019-1 Mortgage Insurance-Linked Notes, Class M-1A
-- Bellemeade Re 2019-2 Ltd., Series 2019-2 Mortgage Insurance-Linked Notes, Class M-1B
-- Eagle Re 2019-1 Ltd., Series 2019-1 Mortgage Insurance-Linked Notes, Class M-2
-- Eagle Re 2019-1 Ltd., Series 2019-1 Mortgage Insurance-Linked Notes, Class B-1
-- Eagle Re 2020-1 Ltd., Mortgage Insurance-Linked Notes, Series 2020-1, Class M-2B
-- Eagle Re 2020-1 Ltd., Mortgage Insurance-Linked Notes, Series 2020-1, Class M-2C
-- Eagle Re 2020-1 Ltd., Mortgage Insurance-Linked Notes, Series 2020-1, Class M-2
-- Eagle Re 2020-1 Ltd., Mortgage Insurance-Linked Notes, Series 2020-1, Class B-1
-- Home Re 2018-1 Ltd., Series 2018-1 Mortgage Insurance-Linked Notes, Class M-1
-- Oaktown Re II Ltd., Series 2018-1 Mortgage Insurance-Linked Notes, Class M-1
-- Oaktown Re II Ltd., Series 2018-1 Mortgage Insurance-Linked Notes, Class M-2
-- Oaktown Re III Ltd., Series 2019-1 Mortgage Insurance-Linked Notes, Class M-1A
-- Oaktown Re III Ltd., Series 2019-1 Mortgage Insurance-Linked Notes, Class B-1B
-- Radnor Re 2020-1 Ltd., Mortgage Insurance-Linked Notes, Series 2020-1, Class M-2B

The rating actions are the result of DBRS Morningstar’s application of its “U.S. RMBS Surveillance Methodology,” published on February 21, 2020.

ESG CONSIDERATIONS
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:
The principal methodologies are the U.S. RMBS Surveillance Methodology (February 21, 2020) and 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.

For more information on these credits or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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