DBRS Morningstar Finalizes Provisional Ratings on RATE Mortgage Trust 2021-J3

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage Pass-Through Certificates (the Certificates) issued by RATE Mortgage Trust 2021-J3:

-- $332.6 million Class A-1 at AAA (sf)
-- $332.6 million Class A-2 at AAA (sf)
-- $332.6 million Class A-3 at AAA (sf)
-- $199.5 million Class A-4 at AAA (sf)
-- $199.5 million Class A-5 at AAA (sf)
-- $199.5 million Class A-6 at AAA (sf)
-- $249.4 million Class A-7 at AAA (sf)
-- $249.4 million Class A-8 at AAA (sf)
-- $249.4 million Class A-9 at AAA (sf)
-- $266.0 million Class A-10 at AAA (sf)
-- $266.0 million Class A-11 at AAA (sf)
-- $266.0 million Class A-12 at AAA (sf)
-- $49.9 million Class A-13 at AAA (sf)
-- $49.9 million Class A-14 at AAA (sf)
-- $49.9 million Class A-15 at AAA (sf)
-- $16.6 million Class A-16 at AAA (sf)
-- $16.6 million Class A-17 at AAA (sf)
-- $16.6 million Class A-18 at AAA (sf)
-- $66.5 million Class A-19 at AAA (sf)
-- $66.5 million Class A-20 at AAA (sf)
-- $66.5 million Class A-21 at AAA (sf)
-- $66.5 million Class A-22 at AAA (sf)
-- $66.5 million Class A-23 at AAA (sf)
-- $66.5 million Class A-24 at AAA (sf)
-- $83.1 million Class A-25 at AAA (sf)
-- $83.1 million Class A-26 at AAA (sf)
-- $83.1 million Class A-27 at AAA (sf)
-- $133.0 million Class A-28 at AAA (sf)
-- $133.0 million Class A-29 at AAA (sf)
-- $133.0 million Class A-30 at AAA (sf)
-- $41.9 million Class A-31 at AAA (sf)
-- $41.9 million Class A-32 at AAA (sf)
-- $41.9 million Class A-33 at AAA (sf)
-- $374.4 million Class A-34 at AAA (sf)
-- $374.4 million Class A-35 at AAA (sf)
-- $374.4 million Class A-36 at AAA (sf)
-- $374.4 million Class A-X-1 at AAA (sf)
-- $332.6 million Class A-X-2 at AAA (sf)
-- $332.6 million Class A-X-3 at AAA (sf)
-- $332.6 million Class A-X-4 at AAA (sf)
-- $199.5 million Class A-X-5 at AAA (sf)
-- $199.5 million Class A-X-6 at AAA (sf)
-- $199.5 million Class A-X-7 at AAA (sf)
-- $249.4 million Class A-X-8 at AAA (sf)
-- $249.4 million Class A-X-9 at AAA (sf)
-- $249.4 million Class A-X-10 at AAA (sf)
-- $266.0 million Class A-X-11 at AAA (sf)
-- $266.0 million Class A-X-12 at AAA (sf)
-- $266.0 million Class A-X-13 at AAA (sf)
-- $49.9 million Class A-X-14 at AAA (sf)
-- $49.9 million Class A-X-15 at AAA (sf)
-- $49.9 million Class A-X-16 at AAA (sf)
-- $16.6 million Class A-X-17 at AAA (sf)
-- $16.6 million Class A-X-18 at AAA (sf)
-- $16.6 million Class A-X-19 at AAA (sf)
-- $66.5 million Class A-X-20 at AAA (sf)
-- $66.5 million Class A-X-21 at AAA (sf)
-- $66.5 million Class A-X-22 at AAA (sf)
-- $66.5 million Class A-X-23 at AAA (sf)
-- $66.5 million Class A-X-24 at AAA (sf)
-- $66.5 million Class A-X-25 at AAA (sf)
-- $83.1 million Class A-X-26 at AAA (sf)
-- $83.1 million Class A-X-27 at AAA (sf)
-- $83.1 million Class A-X-28 at AAA (sf)
-- $133.0 million Class A-X-29 at AAA (sf)
-- $133.0 million Class A-X-30 at AAA (sf)
-- $133.0 million Class A-X-31 at AAA (sf)
-- $41.9 million Class A-X-32 at AAA (sf)
-- $41.9 million Class A-X-33 at AAA (sf)
-- $41.9 million Class A-X-34 at AAA (sf)
-- $374.4 million Class A-X-35 at AAA (sf)
-- $374.4 million Class A-X-36 at AAA (sf)
-- $374.4 million Class A-X-37 at AAA (sf)
-- $5.3 million Class B-1 at AA (sf)
-- $5.3 million Class B-1A at AA (sf)
-- $5.3 million Class B-X-1 at AA (sf)
-- $4.7 million Class B-2 at A (sf)
-- $4.7 million Class B-2A at A (sf)
-- $4.7 million Class B-X-2 at A (sf)
-- $2.3 million Class B-3 at BBB (sf)
-- $2.3 million Class B-4 at BB (sf)
-- $0.8 million Class B-5 at B (sf)

Classes A-X-1, A-X-2, A-X-3, A-X-4, A-X-5, A-X-6, A-X-7, A-X-8, A-X-9, A-X-10, A-X-11, A-X-12, A-X-13, A-X-14, A-X-15, A-X-16, A-X-17, A-X-18, A-X-19, A-X-20, A-X-21, A-X-22, A-X-23, A-X-24, A-X-25, A-X-26, A-X-27, A-X-28, A-X-29, A-X-30, A-X-31, A-X-32, A-X-33, A-X-34, A-X-35, A-X-36, A-X-37, B-X-1, and B-X-2 are interest-only certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-4, A-5, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-16, A-17, A-19, A-20, A-21, A-22, A-23, A-25, A-26, A-27, A-28, A-29, A-30, A-31, A-32, A-34, A-35, A-36, A-X-2, A-X-3, A-X-4, A-X-5, A-X-8, A-X-9, A-X-10, A-X-11, A-X-12, A-X-13, A-X-14, A-X-17, A-X-20, A-X-21, A-X-22, A-X-23, A-X-26, A-X-27, A-X-28, A-X-29, A-X-30, Class A-X-31, Class A-X-32, A-X-35, A-X-36, A-X-37, B-1, and B-2 are exchangeable certificates. These classes can be exchanged for combinations of initial exchangeable certificates 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, A-17, A-18, A-19, A-20, A-21, A-22, A-23, A-24, A-25, A-26, A-27, A-28, A-29, and A-30 certificates are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-31, A-32, and A-33) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 4.30% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 2.95%, 1.75%, 1.15%, 0.55%, and 0.35% of credit enhancement, respectively.

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

This deal is a securitization of a portfolio of first-lien, fixed-rate prime residential mortgages funded by the issuance of the Mortgage Pass-Through Certificates (the Certificates). The Certificates are backed by 426 loans with a total principal balance of $391,265,956 as of the Cut-Off Date (September 1, 2021).

Guaranteed Rate, Inc. (Guaranteed Rate or GRI), as the Sponsor, began issuing prime jumbo securitizations from its RATE shelf in early 2021 and this transaction represents the third prime jumbo RATE deal. 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 one month. Approximately 82.0% of the pool are traditional, nonagency, prime jumbo mortgage loans, which includes loans that were underwritten using an automated underwriting system (AUS) designated by Fannie Mae (45.4%), but may be ineligible for purchase by such agencies because of loan size. The remaining 18.0% of the pool are conforming mortgage loans that were underwritten using an agency AUS and were eligible for purchase by such agencies. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section.

All of the mortgage loans were originated by Guaranteed Rate. Guaranteed Rate is also the Servicing Administrator and Sponsor of the transaction. The loans will be serviced by ServiceMac, LLC (ServiceMac). Wells Fargo Bank, N.A. (Wells Fargo; rated AA with a Negative trend by DBRS Morningstar) will act as the Master Servicer, Securities Administrator, and Certificate Registrar. Deutsche Bank National Trust Company will act as the Custodian. Wilmington Savings Fund Society, FSB will serve as Trustee.

Similar to the prior RATE securitizations, the Servicing Administrator will fund advances of delinquent principal and interest (P&I) on any mortgage until such loan becomes 120 days delinquent or such P&I advances are deemed to be unrecoverable by the Servicer or the Master Servicer (Stop-Advance Loan). The Servicing Administrator will also fund advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties.

The interest entitlements for each class in this transaction are reduced reverse sequentially by the delinquent interest that would have accrued on the Stop-Advance Loans. In other words, investors are not entitled to any interest on such severely delinquent mortgages, unless such interest amounts are recovered. The delinquent interest recovery amounts, if any, will be distributed sequentially to the P&I certificates.

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

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 to 120 days delinquent under the Mortgage Bankers Association (MBA) method at a price equal to par plus interest and unreimbursed servicing advance amounts, provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

For this transaction, three loans (0.8% 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 Disease (COVID-19), as of September 16, 2021. The Sponsor has elected to obtain third-party property disaster inspection (PDI) reports for such FEMA zone loans, and for any FEMA zone loan where the PDI indicates material damage, the Sponsor will effect a remedy for the breach of the damage representation.

CORONAVIRUS PANDEMIC IMPACT
The Coronavirus Disease (COVID-19) 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. DBRS Morningstar saw increases in delinquencies for many residential mortgage-backed securities (RMBS) asset classes, shortly after the onset of the coronavirus.

Such mortgage delinquencies were mostly in the form of forbearance, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of the coronavirus, because the option to forebear mortgage payments was so widely available, it drove forbearance to a very high level. When the dust settled, coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and good underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending down in recent months as the forbearance period comes to an end for many borrowers.

As of the Cut-Off Date, no borrower within the pool has been subject to a coronavirus-related forbearance plan with the Servicer.

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 a high-quality credit attributes, well-qualified borrowers, satisfactory third-party due diligence review, structural enhancements, and 100% current loans.

The ratings reflect transactional challenges that include the representations and warranties framework, limited advances of delinquent P&I, and the servicing administrator’s financial capability.

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 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 the 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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