KBRA Assigns Preliminary Ratings to New Residential Mortgage Loan Trust 2020-NQM2 (NRMLT 2020-NQM2)

Kroll Bond Rating Agency, Inc. (KBRA) assigns preliminary ratings to six classes of mortgage-backed notes from New Residential Mortgage Loan Trust 2020-NQM2 (NRMLT 2020-NQM2), a $159.9 million non-prime RMBS transaction.

The underlying NRMLT 2020-NQM2 pool consists of non-prime, mostly non-QM collateral with a meaningful percentage of loans (17.9% by balance) in active forbearance (16.4%) or completed deferral (1.5%) plans due to the COVID-19 crisis at the time of the analysis. Aside from the payment relief effects known at the time of analysis, NRMLT 2020-NQM2 differs from previous NRMLT non-prime securitizations due to its sequential payment structure and the specific treatment of advancing relating to loans during their forbearance period. KBRA made a number of adjustments to its expected losses and cash flow modeling scenarios, including assumptions for an increase in forbearance and delinquency in the short term, increased default risk for forbearance and deferred loans notwithstanding current payment status, reductions in credit to excess spread and front-loaded home price decline timing projections.

NRMLT 2020-NQM2 is sponsored by New Residential Investment Corp. (NYSE: NRZ). All of the underlying mortgages (100.0% of the pool) were originated, directly or via correspondent, by NewRez LLC, a subsidiary of NRZ. In addition, all loans will be serviced by NewRez LLC d/b/a Shellpoint Mortgage Servicing. The $159.9 million NRMLT 2020-NQM2 mortgage pool comprises 257 residential mortgages characterized by moderate borrower leverage and a notable concentration of alternative income documentation, including 50.5% of the loans underwritten using bank statements. Of the loans subject to the Ability-to-Repay (ATR) rule, approximately 79.9% are classified as non-QM, with the rest exempt from the regulation due to being originated as investment properties for business purposes (20.1%).

The NRMLT 2020-NQM2 pool has a non-zero weighted average (NZWA) original credit score of 738 and a NZWA debt-to-income (DTI) ratio of 34.6%. Borrowers in NRMLT 2020-NQM2 exhibit considerable equity in each mortgaged property, as evidenced by WA original loan-to-value (LTV) and combined LTV (CLTV) ratios of 70.6% and 70.8%, respectively. The pool has a WA loan age (WALA) of approximately three months, and it includes both fixed-rate mortgages (FRMs, 83.2%) and hybrid adjustable-rate mortgages (ARMs, 16.8%). Approximately 17.6% of the mortgages have an interest-only period, all of which last for ten years.

KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its Residential Mortgage Default and Loss Model, an examination of the results from third-party loan file due diligence, cash flow modeling, analysis of the transaction’s payment structure, reviews of key transaction parties and an assessment of the transaction’s legal structure and documentation. This analysis is further described in our U.S. RMBS Rating Methodology.

Click here to view the report. To access ratings and relevant documents, click here.

Related Publications

• NRMLT 2020-NQM2 Tear Sheet
• RMBS KBRA Comparative Analytic Tool (KCAT)
• U.S. RMBS Rating Methodology
• Residential Mortgage Default and Loss Model
• U.S. RMBS Rating Methodology for Assessing Non-QM Risk
• Global Structured Finance Counterparty Methodology

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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