DBRS Morningstar Finalizes Provisional Ratings on NYMT Loan Trust 2022-CP1

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Mortgage-Backed Notes, Series 2022-CP1 (the Notes) issued by NYMT Loan Trust 2022-CP1 (NYMT 2022-CP1 or the Issuer):

-- $228.2 million Class A-1 at AAA (sf)
-- $23.3 million Class A-2 at AA (sf)
-- $20.6 million Class M-1 at A (low) (sf)
-- $15.7 million Class M-2 at BBB (sf)
-- $9.8 million Class B-1 at BB (low) (sf)
-- $5.1 million Class B-2 at B (sf)

The AAA (sf) rating on the Notes reflects 26.45% of credit enhancement provided by subordinated certificates. The AA (sf), A (low) (sf), BBB (sf), BB (low) (sf), and B (sf) ratings reflect 18.95%, 12.30%, 7.25%, 4.10%, and 2.45% of credit enhancement, respectively.

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

The NYMT 2022-CP1 securitization is backed by a portfolio of predominantly seasoned performing and reperforming first-lien mortgages funded by the issuance of the Notes. The Notes are backed by 1,949 loans with a total principal balance $310,218,919 as of the Cut-Off Date (November 30, 2021).

NYMT 2022-CP1 represents the first rated seasoned, reperforming loan securitization issued by the Sponsor, New York Mortgage Trust, Inc. (NYMT), from the NYMT shelf. Prior to NYMT 2022-CP1, NYMT issued eight unrated seasoned securitizations since 2012. These securitizations were backed by seasoned, performing, or reperforming loans of varying credit profiles.

For this deal, the mortgage loans are approximately 142 months seasoned. The portfolio contains 57.9% modified loans, and modifications happened more than two years ago for 90.0% of the modified loans. Within the pool, 853 mortgages, equating to approximately 3.7% of the total principal balance, have non-interest-bearing deferred amounts. There are no mortgages in the Home Affordable Modification Program, and proprietary principal forgiveness amounts are not included in the deferred amounts. The majority of the pool (75.4%) is not subject to the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules.

As of the Cut-Off Date, 99.2% of the pool is current and 0.8% is 30+ days delinquent, including one loan that is 60 days delinquent, under the Mortgage Bankers Association (MBA) delinquency method. Approximately 76.1% of the mortgage loans have been zero times 30 days delinquent (0 x 30) for at least the past 24 months under the MBA delinquency method or 0 x 30 since origination for loans less than 24 months seasoned.

The Seller, or an affiliate, acquired the loans directly or indirectly from various originators or other secondary market participants prior to the Closing Date. On the Closing Date, NYMT Securitization I, LLC, the Depositor, will contribute the loans to the Trust.

The Sponsor or a wholly owned affiliate will retain a 5% eligible horizontal residual interest consisting of the Class B-1, B-2, B-3, and XS Notes to satisfy the credit risk retention requirements promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As of the Cut-Off Date, the loans are serviced by Fay Servicing, LLC (71.0%) and Specialized Loan Servicing, LLC (29.0%). There will not be any advancing of delinquent principal or interest on any mortgages by the Servicers or any other party to the transaction; however, the Servicers are obligated to make certain advances in respect of homeowner’s association fees, taxes, and insurance, and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Issuer can redeem the Notes in whole but not in part at the tax redemption price (par plus interest) following a tax event as described in the transaction documents (Tax Redemption).

On or after the earlier of (1) the third anniversary of the Closing Date or (2) the date on which the aggregate stated principal balance of the loans falls to 30% or less of the Cut-Off Date balance, the Administrator, at its option, on behalf of the Issuer may purchase all of the Notes at the optional termination price (par plus interest) described in the transaction documents (Optional Redemption).

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 Class B-1 and more subordinate bonds will not be paid from principal proceeds until the more senior classes are retired.

Certain features in this transaction are less commonly seen in DBRS Morningstar-rated seasoned securitizations, such as the interest rates on the Notes and the principal payment priority. The interest rates on the Notes are set at fixed rates, which are not capped by the net weighted-average coupon (Net WAC) or available funds. This feature causes the structure to need elevated subordination levels relative to a comparable structure with fixed-capped interest rates because more principal must be used to cover interest shortfalls. In addition, within the principal payment priority, the Class A Notes as well as the Class M Notes all receive interest before principal gets paid to the Class A-1 Notes. This feature preserves interest payments to those more senior classes. DBRS Morningstar considered such nuanced features and took them into account in its cash flow analysis.

CORONAVIRUS DISEASE (COVID-19) PANDEMIC IMPACT

The 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. Shortly after the onset of the pandemic, DBRS Morningstar saw an increase in 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 (LTVs), and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.

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 December 2021 Update, dated December 9, 2021.

The ratings reflect transactional strengths that include low LTVs, loan performance history, satisfactory third-party due-diligence, and loan seasoning.

The ratings reflect transactional challenges that include the representations and warranties framework, 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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