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Rating Action:

Moody's Investors Service, ("Moody's") assigns provisional ratings to New Residential Mortgage Loan Trust 2016-1

Global Credit Research - 22 Mar 2016

New York, March 22, 2016 -- Moody's Investors Service has assigned provisional ratings to 13 classes of notes issued by New Residential Mortgage Loan Trust 2016-1 ("NRMLT 2016-1"). The NRMLT 2016-1 transaction is a securitization of $261.2 million of first lien, seasoned mortgage loans with weighted average seasoning of 150 months, weighted average updated LTV ratio of 60.7% and weighted average updated FICO score of 697. Approximately 25.8% of the loans were previously modified. Ocwen Loan Servicing, LLC, Nationstar Mortgage LLC and PNC Mortgage (PNC), will act as primary servicers and Nationstar Mortgage LLC will act as Master Servicer.

The complete rating action is as follows:

Issuer: New Residential Mortgage Loan Trust 2016-1

Cl. A-1, Assigned (P)Aaa (sf)

Cl. A-2, Assigned (P)Aaa (sf)

Cl. A-IO, Assigned (P)Aaa (sf)

Cl. A-3, Assigned (P)Aaa (sf)

Cl. A-4, Assigned (P)Aa1 (sf)

Cl. A, Assigned (P)Aaa (sf)

Cl. B-1, Assigned (P)Aa2 (sf)

Cl. B1-IO, Assigned (P)Aa2 (sf)

Cl. B-2, Assigned (P)A2 (sf)

Cl. B2-IO, Assigned (P)A2 (sf)

Cl. B-3, Assigned (P)Baa2 (sf)

Cl. B-4, Assigned (P)Ba1 (sf)

Cl. B-5, Assigned (P)B2 (sf)

RATINGS RATIONALE

Our losses on the collateral pool are 2.65% in an expected scenario and reach 15.25% at a stress level consistent with the Aaa (sf) ratings on the senior classes. We based our expected loss on this pool on our estimates of (1) the default rate on the remaining balance of the loans and (2) the principal recovery rate on the defaulted balances. The final expected losses for the pool reflect the third party review (TPR) findings and our assessment of the representations and warranties (R&Ws) framework of this transaction.

To estimate the losses on this pool, we used an approach similar to our surveillance approach. Under this approach, we apply expected annual delinquency rates, conditional prepayment rates (CPRs), loss severity rates and other variables to estimate future losses on the pool. Our assumptions on these variables are based on the observed rate of delinquency on seasoned modified and non-modified loans, and the collateral attributes of the pool including the percentage of loans that were delinquent in the past 24 months. For this pool, we used default burnout and voluntary CPR assumptions similar to those detailed in our "US RMBS Surveillance Methodology" for Alt-A loans originated before 2005. We then aggregated the delinquencies and converted them to losses by applying pool-specific lifetime default frequency and loss severity assumptions.

Collateral Description

NRMLT 2016-1 is a securitization of seasoned performing residential mortgage loans which the seller, NRZ Sponsor VI LLC, has previously purchased or will purchase on the closing date, in connection with the termination of various securitization trusts. The transaction consists primarily of 30-year fixed rate loans. 74.2% of the loans in this pool by balance have never been modified and have been performing while approximately 25.8% of the loans were previously modified but are now current and cash flowing. The weighted average seasoning on the collateral is 150 months.

Third-party Review and Representations & Warranties

A third party due diligence provider conducted a compliance review on a sample of 769 loans proposed to be included in the mortgage pool. The regulatory compliance review consisted of a review of compliance with Section 32/HOEPA, Federal Truth in Lending Act/Regulation Z (TILA), the Real Estate Settlement Protection Act/Regulation X (TILA), and federal, state and local anti-predatory regulations. Home data index (HDI) values were obtained for 1,773 out of 1,789 properties in the securitization. In addition, updated broker price opinions (BPOs) were obtained for 522 of the properties contained within the securitization from a third party BPO provider.

The third party due diligence provider also conducted a review of data integrity, pay history, and title/lien review on the selected sample to confirm that certain information in the mortgage loan files matched the data supplied by the servicers. Any issues identified during the data integrity review were corrected on the data tape, and the pay history analysis indicated there were no material pay history issues on the data tape.

The third party due diligence review identified 567 loans that had compliance exceptions, the majority of which were due to missing HUD and/or TIL documents, under disclosed finance charges, missing right to cancel disclosures, or missing FACTA disclosures. Although the diligence provider's report indicated that the statute of limitations for borrowers to rescind their loans has already passed, borrowers can still raise these legal claims in defense against foreclosure as a set off or recoupment and win damages that can reduce the amount of the foreclosure proceeds. Such damages include up to $4,000 in statutory damages, borrowers' legal fees and other actual damages.

The seller, NRZ Sponsor VI LLC, is providing a representation and warranty for missing mortgage files. To the extent that the indenture trustee, master servicer, related servicer, depositor or custodian has actual knowledge of a defective or missing mortgage loan document or a breach of a representation or warranty regarding the completeness of the mortgage file or the accuracy of the mortgage loan documents, and such missing document, defect or breach is preventing or materially delaying the (a) realization against the related mortgaged property through foreclosure or similar loss mitigation activity or (b) processing of any title claim under the related title insurance policy, the party with such actual knowledge will give written notice of such breach, defect or missing document, as applicable, to the seller, indenture trustee, depositor, master servicer, related servicer and custodian. Upon notification of a missing or defective mortgage loan file, the seller will have 120 days from the date it receives such notification to deliver the missing document or otherwise cure the defect or breach. If it is unable to do so, the seller will be obligated to replace or repurchase the mortgage loan.

Despite this provision, we increased our loss severities to account for loans with missing title policies (according to both the title/lien review and a custodial file review), mortgage notes, or mortgage/deed/security agreements. This adjustment was based on both the results of the TPR review and because the R&W provider is an unrated entity and weak from a credit perspective. In our analysis we assumed that 1.4% of the projected defaults will have missing documents' breaches that will not be remedied and result in higher than expected loss severities.

Trustee & Master Servicer

The transaction indenture trustee is Wilmington Trust National Association. The custodian functions will be performed by Wells Fargo Bank, N.A. The paying agent and cash management functions will be performed by Citibank, N.A. In addition, Nationstar Mortgage LLC, as master servicer, is responsible for servicer oversight, termination of servicers, and the appointment of successor servicers.

Transaction Structure

The transaction cash flows follow a shifting interest structure that allows subordinated bonds to increasingly receive principal prepayments after an initial lock-out period of five years, provided two performance tests are met. To pass the first test, the delinquent and recently modified loan balance cannot exceed 50% of the subordinate bonds outstanding. To pass the second test, cumulative losses cannot exceed certain thresholds that gradually increase over time.

Because a shifting interest structure allows subordinated bonds to pay down over time as the loan pool shrinks, senior bonds are exposed to tail risk, i.e., risk of back-ended losses when fewer loans remain in the pool. The transaction provides for a subordination floor that helps to reduce this tail risk. Specifically, the subordination floor prevents subordinate bonds from receiving any principal if the amount of subordinate bonds outstanding falls below 3.1% of the closing principal balance. There is also a provision that prevents subordinate bonds from receiving principal if the credit enhancement for the Class A-2 Note falls below its percentage at closing, 16.75%. These provisions mitigate tail risk by protecting the senior bonds from eroding credit enhancement over time.

Factors that would lead to an upgrade or downgrade of the rating:

Up

Levels of credit protection that are higher than necessary to protect investors against current expectations of loss could drive the ratings up. Losses could decline from our original expectations as a result of a lower number of obligor defaults or appreciation in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for better-than-expected performance include changes to servicing practices that enhance collections or refinancing opportunities that result in prepayments.

Down

Levels of credit protection that are insufficient to protect investors against current expectations of loss could drive the ratings down. Losses could rise above our original expectations as a result of a higher number of obligor defaults or deterioration in the value of the mortgaged property securing an obligor's promise of payment. Transaction performance also depends greatly on the US macro economy and housing market. Other reasons for worse-than-expected performance include poor servicing, error on the part of transaction parties, inadequate transaction governance and fraud.

The methodologies used in these ratings were "Moody's Approach to Rating Securitisations Backed by Non-Performing Loans" published in July 2014, and "US RMBS Surveillance Methodology" published in November 2013. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.

For further details on the transaction, please check Moody's pre-sale report for this transaction.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1021001

In rating this transaction, Moody's used a cash flow model to model cash flow stress scenarios to determine the extent to which investors would receive timely payments of interest and principal in the stress scenarios, given the transaction structure and collateral composition.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Matthew Schurin
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Deepika Kothari
Senior Vice President
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, ("Moody's") assigns provisional ratings to New Residential Mortgage Loan Trust 2016-1
No Related Data.
© 2017 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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