DBRS Morningstar Finalizes Provisional Ratings on COLT 2021-RPL1 Trust

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage-Backed Notes, Series 2021-RPL1 (the Notes) issued by COLT 2021-RPL1 Trust (COLT 2021-RPL1 or the Trust):

-- $146.6 million Class A-1 at AAA (sf)
-- $7.9 million Class A-2 at AA (sf)
-- $7.7 million Class M-1 at A (sf)
-- $8.4 million Class M-2 at BBB (sf)
-- $7.6 million Class B-1 at BB (sf)
-- $7.6 million Class B-2 at B (sf)

The AAA (sf) rating on the Notes reflects 27.25% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 23.35%, 19.55%, 15.40%, 11.65%, and 7.90% of credit enhancement, respectively.

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

The Trust is a securitization of a portfolio of seasoned performing and reperforming first-lien residential mortgages funded by the issuance of mortgage-backed securities (the Notes). The Notes are backed by 1,531 loans with a total principal balance of $201,470,765 as of the Cut-Off Date (September 30, 2021).

COLT 2021-RPL1 represents the second rated seasoned reperforming loan securitization issued by the Sponsor, LSRMF Mortgage Holdings II, LLC (LSMRF) from the COLT shelf. Prior to COLT 2021-RPL1, LSRMF issued one other rated seasoned securitization, COLT 2020-RPL1, and 116 unrated seasoned securitizations under the VOLT shelf. These securitizations were backed by nonprime, reperforming, or nonperforming loans of varying credit profiles. For this transaction, LSMRF acquired the mortgage loans from a collapsed 2019 securitization of seasoned loans.

The mortgage loans are approximately 190 months seasoned. As of the Cut-Off Date, 85.0% of the loans are current, 14.7% of the loans are 30 days delinquent, and 0.3% are 60 days or more delinquent under the Mortgage Bankers Association (MBA) delinquency method. This includes 171 (11.8% of the loans) bankruptcy loans.

Although the number of months clean (consecutively zero times 30 (0 x 30) days delinquent) at issuance is weaker relative to other DBRS Morningstar-rated seasoned transactions, the borrowers in this pool demonstrate reasonable cash flow velocity (number of payments over time) in the past 12 months. Over the past 12 months, 1,527 loans (or 99.8%) have made six or more payments and 1,283 loans (or 82.6%) have made 12 or more payments.

Modified loans make up 81.3% of the portfolio. The modifications happened more than two years ago for 84.8% of the modified loans. Within the pool, 492 mortgages (32.1% of the pool by loan count) have a total non-interest-bearing deferred amount of $17,134,836, which equates to approximately 8.5% of the total principal balance. The figures in this report are based upon total principal balance including the total non-interest-bearing deferred amounts.

The loans in this transaction are primarily single-family residential first-lien mortgage notes where the borrowers are in a current Chapter 13, Chapter 11, or Chapter 7 bankruptcy or have had their bankruptcies dismissed or discharged. As of the Cut-off-date, 88.2% of the portfolio is not in bankruptcy. Of these loans, 17.8% were never previously bankrupt and 70.4% had a bankruptcy that was either dismissed or discharged. As of the Cut-Off Date, 10.4% of the pool is in Chapter 13 bankruptcy, 1.3% is in Chapter 11 bankruptcy, and less than 0.1% is in Chapter 7 bankruptcy.

As of the Cut-Off Date, the loans are serviced by two interim servicers. Such servicing will be transferred to Fay Servicing, LLC (Fay) by December 1, 2021. The Servicer will not advance any delinquent principal and interest (P&I) on the mortgages; however, the Servicer is obligated to make advances in respect of prior liens, insurance, real estate taxes, and assessments as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

On or after the earlier of (1) the Payment Date in October 2024 or (2) the date when the aggregate principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Sponsor has the option to purchase all of the outstanding Notes at a price equal to the outstanding class balance plus accrued and unpaid interest, including any Net WAC shortfall amounts and any fees, expenses and indemnity payments owed to the Servicer.

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 or more days delinquent at the repurchase price (par plus interest and fees), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Sponsor, LSMRF, or one of its a majority-owned affiliates will acquire and retain a 5% eligible horizontal interest in the Notes, consisting of the Class B-3B and XS Notes, to satisfy the credit risk retention requirements.

The transaction employs a sequential-pay cash flow structure. Principal proceeds and excess interest can be used to cover interest shortfalls on the Notes, but such shortfalls on the Class M-1 Notes and more subordinate bonds will not be paid from principal proceeds until the more senior classes are retired. This structure is typical of DBRS Morningstar-rated seasoned reperforming loan transactions.

CORONAVIRUS PANDEMIC IMPACT
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures 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 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 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.

In connection with the economic stress assumed under its moderate scenario (see “Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 2021), DBRS Morningstar may assume higher loss expectations for pools with loans on forbearance plans.

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 loan seasoning, low loan-to-value ratios, satisfactory third-party due-diligence, and structural features.

The ratings reflect transactional challenges that include the representations and warranties framework, loans in bankruptcy, no servicer advances of principal and interest, and missing assignments and endorsements.

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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