DBRS Morningstar Finalizes Provisional Ratings on Flagstar Mortgage Trust 2021-12

DBRS, Inc. (DBRS Morningstar) finalized provisional ratings on the Mortgage Pass-Through Certificates, Series 2021-12 (the Certificates) issued by Flagstar Mortgage Trust 2021-12 as follows:

-- $641.5 million Class A-1 at AAA (sf)
-- $577.4 million Class A-2 at AAA (sf)
-- $641.5 million Class A-3 at AAA (sf)
-- $577.4 million Class A-4 at AAA (sf)
-- $433.0 million Class A-5 at AAA (sf)
-- $433.0 million Class A-6 at AAA (sf)
-- $346.4 million Class A-7 at AAA (sf)
-- $346.4 million Class A-8 at AAA (sf)
-- $86.6 million Class A-9 at AAA (sf)
-- $86.6 million Class A-10 at AAA (sf)
-- $64.2 million Class A-11 at AAA (sf)
-- $64.2 million Class A-11X at AAA (sf)
-- $144.3 million Class A-12 at AAA (sf)
-- $144.3 million Class A-13 at AAA (sf)
-- $230.9 million Class A-14 at AAA (sf)
-- $230.9 million Class A-15 at AAA (sf)
-- $76.6 million Class A-16 at AAA (sf)
-- $76.6 million Class A-17 at AAA (sf)
-- $76.6 million Class A-18 at AAA (sf)
-- $64.2 million Class A-19 at AAA (sf)
-- $64.2 million Class A-20 at AAA (sf)
-- $64.2 million Class A-21 at AAA (sf)
-- $718.1 million Class A-X-1 at AAA (sf)
-- $577.4 million Class A-X-4 at AAA (sf)
-- $433.0 million Class A-X-6 at AAA (sf)
-- $346.4 million Class A-X-8 at AAA (sf)
-- $86.6 million Class A-X-10 at AAA (sf)
-- $144.3 million Class A-X-13 at AAA (sf)
-- $230.9 million Class A-X-15 at AAA (sf)
-- $76.6 million Class A-X-16 at AAA (sf)
-- $76.6 million Class A-X-17 at AAA (sf)
-- $76.6 million Class A-X-18 at AAA (sf)
-- $64.2 million Class A-X-20 at AAA (sf)
-- $64.2 million Class A-X-21 at AAA (sf)
-- $13.2 million Class B-1 at AA (sf)
-- $8.3 million Class B-2 at A (sf)
-- $6.8 million Class B-3 at BBB (sf)
-- $4.2 million Class B-4 at BB (low) (sf)
-- $1.1 million Class B-5 at B (low) (sf)

Classes A-11X, A-X-1, A-X-4, A-X-6, A-X-8, A-X-10, A-X-13, A-X-15, A-X-16, A-X-17, A-X-18, A-X-20, and A-X-21 are interest-only certificates. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-9, A-12, A-14, A-15, A-16, A-17, A-19, A-20, A-21, A-X-4, A-X-6, A-X-15, A-X-16, A-X-20, and A-X-21 are exchangeable certificates. These classes can be exchanged for combinations of exchange 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-19, A-20, and A-21 are super-senior certificates. These classes benefit from additional protection from the senior support certificates (Classes A-16, A-17, and A-18) with respect to loss allocation.

The AAA (sf) ratings on the Certificates reflect 4.85% of credit enhancement provided by subordinated certificates. The AA (sf), A (sf), BBB (sf), BB (low) (sf), and B (low) (sf) ratings reflect 3.10%, 2.00%, 1.10%, 0.55%, and 0.40% of credit enhancement, respectively.

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

This securitization is a portfolio of first-lien, fixed-rate, prime residential mortgages funded by the issuance of the Mortgage Pass-Through Certificates, Series 2021-12 (the Certificates). The Certificates are backed by 855 loans with a total principal balance of $754,714,571 as of the Cut-Off Date (November 1, 2021).

Flagstar Bank, FSB (Flagstar) is the originator and servicer of all mortgage loans and the sponsor of the transaction. Wells Fargo Bank, N.A. (Wells Fargo) will act as the Master Servicer, Securities Administrator, and Custodian. Wilmington Savings Fund Society, FSB will serve as Trustee. PentAlpha Surveillance LLC (PentAlpha) will act as the Reviewer.

The pool consists of fully amortizing fixed-rate mortgages with original terms to maturity of 30 years. Approximately 96.3% of the pool are traditional, nonagency, prime jumbo mortgage loans, which includes loans that were underwritten using an automated underwriting system designated by Fannie Mae or Freddie Mac (19.0%), but may be ineligible for purchase by such agencies because of loan size. Approximately 3.7% of the pool are agency eligible mortgage loans that were eligible for purchase by Fannie Mae or Freddie Mac. Details on the underwriting of conforming loans can be found in the Key Probability of Default Drivers section of the related report.

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

For this transaction, the servicing fee payable to the Servicer comprises three separate components: the base servicing fee, the aggregate delinquent servicing fee, and the aggregate incentive servicing fee. These fees vary based on the delinquency status of the related loan and will be paid from interest collections before distribution to the securities. The base servicing fee will reduce the Net weighted-average coupon (WAC) payable to certificateholders as part of the aggregate expense calculation. However, except for the Class B-6-C Net WAC, the delinquent and incentive servicing fees will not be included in the reduction of Net WAC and will thus reduce available funds entitled to the certificateholders. To capture the impact of such potential fees, DBRS Morningstar ran additional cash flow stresses based on its 60+-day delinquency and default curves, as detailed in the Cash Flow Analysis section of the related report.

CORONAVIRUS PANDEMIC IMPACT
The coronavirus pandemic and the resulting isolation measures 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 pandemic.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forebear mortgage payments was widely available and it drove forbearances to a very high level. When the dust settled, coronavirus-induced forbearances 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, none of the loans are currently subject to a Coronavirus Disease (COVID-19)-related forbearance plan. In the event a borrower requests or enters into a coronavirus-related forbearance plan after the Cut-Off Date but, prior to the Closing Date, the Sponsor will remove such loan from the mortgage pool and remit the related Closing Date substitution amount. Loans that enter a coronavirus-related forbearance plan after the Closing Date will remain in the pool.

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 high-quality credit attributes, well-qualified borrowers, financial strength of the counterparties, structural enhancements, and 100% current loans.

The ratings reflect transactional weaknesses that include the representations and warranties framework and a limited third-party due-diligence review.

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 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.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 (212) 806 3926
Tel. +1 212 806-3277