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Rating Action:

Moody's assigns definitive ratings to New Residential Mortgage Loan Trust 2019-4

13 Aug 2019

New York, August 13, 2019 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to 32 classes of notes issued by New Residential Mortgage Loan Trust 2019-4 ("NRMLT 2019-4"). The NRMLT 2019-4 transaction is a $559 million securitization of 3,965 first lien, seasoned performing and re-performing fixed-rate mortgage loans with weighted average seasoning of 176 months, a weighted average updated LTV ratio of 52.2% and a non-zero weighted average updated FICO score of 690. Based on the OTS methodology, 80.5% of the loans by scheduled balance have been continuously current for the past 24 months. Approximately 47.2% of the loans in the pool (by scheduled balance) have been previously modified. Nationstar Mortgage LLC (Nationstar), PHH Mortgage Corporation (PHH Mortgage), Shellpoint Mortgage Servicing (Shellpoint), Select Portfolio Servicing, Inc. (SPS) and Wells Fargo Bank, N.A. (Wells Fargo) will service approximately 61.0%, 36.1%, 1.2%, 0.9% and 0.8% of the loans (by scheduled balance), respectively. Nationstar will act as master servicer and successor servicer and Shellpoint will act as the special servicer.

The complete rating action is as follows:

Issuer: New Residential Mortgage Loan Trust 2019-4

Cl. A, Definitive Rating Assigned Aaa (sf)

Cl. A-1, Definitive Rating Assigned Aaa (sf)

Cl. A-1A, Definitive Rating Assigned Aaa (sf)

Cl. A-1B, Definitive Rating Assigned Aaa (sf)

Cl. A-1C, Definitive Rating Assigned Aaa (sf)

Cl. A-1D, Definitive Rating Assigned Aaa (sf)

Cl. A-2, Definitive Rating Assigned Aa1 (sf)

Cl. B-1, Definitive Rating Assigned Aa2 (sf)

Cl. B-1A, Definitive Rating Assigned Aa2 (sf)

Cl. B-1B, Definitive Rating Assigned Aa2 (sf)

Cl. B-1C, Definitive Rating Assigned Aa2 (sf)

Cl. B-1D, Definitive Rating Assigned Aa2 (sf)

Cl. B-2, Definitive Rating Assigned A2 (sf)

Cl. B-2A, Definitive Rating Assigned A2 (sf)

Cl. B-2B, Definitive Rating Assigned A2 (sf)

Cl. B-2C, Definitive Rating Assigned A2 (sf)

Cl. B-2D, Definitive Rating Assigned A2 (sf)

Cl. B-3, Definitive Rating Assigned Baa2 (sf)

Cl. B-3A, Definitive Rating Assigned Baa2 (sf)

Cl. B-3B, Definitive Rating Assigned Baa2 (sf)

Cl. B-3C, Definitive Rating Assigned Baa2 (sf)

Cl. B-3D, Definitive Rating Assigned Baa2 (sf)

Cl. B-4, Definitive Rating Assigned Ba2 (sf)

Cl. B-4A, Definitive Rating Assigned Ba2 (sf)

Cl. B-4B, Definitive Rating Assigned Ba2 (sf)

Cl. B-4C, Definitive Rating Assigned Ba2 (sf)

Cl. B-5, Definitive Rating Assigned B2 (sf)

Cl. B-5A, Definitive Rating Assigned B2 (sf)

Cl. B-5B, Definitive Rating Assigned B2 (sf)

Cl. B-5C, Definitive Rating Assigned B2 (sf)

Cl. B-5D, Definitive Rating Assigned B2 (sf)

Cl. B-7, Definitive Rating Assigned B1 (sf)

RATINGS RATIONALE

Our losses on the collateral pool equal 4.30% in an expected scenario and reach 21.30% at a stress level consistent with the Aaa (sf) ratings on the senior classes. We based our expected losses for the 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 for this transaction. Also, the transaction contains a mortgage loan sale provision, the exercise of which is subject to potential conflicts of interest. As a result of this provision, we increased our expected losses for the pool.

To estimate the losses on the 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 performance of seasoned modified and non-modified loans, the collateral attributes of the pool including the percentage of loans that were delinquent in the past 36 months. For this pool, we used default burnout assumptions similar to those detailed in our "US RMBS Surveillance Methodology" for Alt-A loans originated pre-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 2019-4 is a securitization of 3,965 seasoned performing and re-performing fixed-rate residential mortgage loans which the seller, NRZ Sponsor IX LLC, has purchased in connection with the termination of various securitization trusts. Similar to prior NRMLT transactions we have rated, nearly all of the collateral was sourced from terminated securitizations. Approximately 47.2% of the loans had previously been modified.

The updated value of properties in this pool were provided by a third-party firm using a home data index (HDI) and/or an updated broker price opinion (BPO). BPOs were provided for a sample of 622 out of the 3,143 properties contained within the securitization. HDI values were provided for all but one property contained within the securitization. The weighted average updated LTV ratio on the collateral is 52.2%, implying an average of 47.8% borrower equity in the properties.

Third-Party Review ("TPR") and Representations & Warranties ("R&W")

Two third-party due diligence providers, AMC and Recovco, conducted a regulatory compliance review on a sample of 1,008 and 622 seasoned mortgage loans respectively for the initial due diligence pool. The regulatory compliance review consisted of a review of compliance with the federal Truth in Lending Act (TILA) as implemented by Regulation Z, the federal Real Estate Settlement Procedures Act (RESPA) as implemented by Regulation X, the disclosure requirements and prohibitions of Section 50(a)(6), Article XVI of the Texas Constitution, federal, state and local anti-predatory regulations, federal and state specific late charge and prepayment penalty regulations, and document review.

AMC found that 170 out of 1,008 loans had compliance exceptions with rating agency grade C or D. Recovco reviewed 622 loans and found that 76 loans have a rating of C or D.

Based on our analysis of the TPR reports, we determined that a portion of the loans with some cited violations are at enhanced risk of having violated TILA through an under-disclosure of the finance charges or other disclosure deficiencies. Although the TPR 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. We increased our losses for these loans to account for such damages.

AMC and Recovco reviewed the findings of various title search reports covering 741 and 354 mortgage loans respectively in the preliminary sample population in order to confirm the first lien position of the related mortgages. Overall, AMC's review confirmed that 739 mortgages were in first lien position. For the two remaining loans reviewed by AMC, proof of first lien position could only be confirmed using the final title policy as of loan origination. Recovco reported that 354 of the mortgage loans it reviewed were in first-lien position.

The seller, NRZ Sponsor IX LLC, is providing a representation and warranty for missing mortgage files. To the extent that the master servicer, related servicer or depositor has actual knowledge, or a responsible officer of the Indenture Trustee has received written notice, 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 and related servicer. 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.

Trustee, Custodians, Paying Agent, Servicers, Master Servicer, Successor Servicer and Special Servicer

The transaction indenture trustee is Wilmington Trust, National Association. The custodian functions will be performed by Wells Fargo Bank, N.A and U.S. Bank, National Association. The paying agent and cash management functions will be performed by Citibank, N.A. In addition, Nationstar, as master servicer, is responsible for servicer oversight, termination of servicers, and the appointment of successor servicers. Having Nationstar as a master servicer mitigates servicing-related risk due to the performance oversight that it will provide. Shellpoint will serve as the special servicer and, as such, will be responsible for servicing mortgage loans that become 60 or more days delinquent. Nationstar will serve as the designated successor servicer.

Nationstar, PHH Mortgage, Shellpoint, SPS and Wells Fargo will service approximately 61.0%, 36.1%, 1.2%, 0.9% and 0.8% of the loans by scheduled balance, respectively. We consider the overall servicing arrangement to be adequate.

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 senior and 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 4.50% of the cut-off date principal balance. There is also a provision that prevents subordinate bonds from receiving principal if the credit enhancement for the Class A-1 note falls below its percentage at closing, 25.50%. In addition, there are provisions that "lock out" certain subordinate bonds and allocate principal to more senior subordinate bonds if, for a given class, credit enhancement levels decline below their initial percentages or below 4.50% of the cut-off date principal balance. These provisions have been incorporated into our cash flow model and are reflected in our ratings

Other Considerations

The transaction contains a mortgage loan sale provision, the exercise of which is subject to potential conflicts of interest. The servicers in the transaction may sell mortgage loans that become 60 or more days delinquent according to the MBA methodology to any party in the secondary market in an arms-length transaction and at a fair market value. For such sale to take place, the related servicer must determine, in its reasonable commercial judgment, that such sale would maximize proceeds on a present value basis. If the sponsor or any of its subsidiaries is the purchaser, the related servicer must obtain at least two additional independent bids. The transaction documents provide little detail on the method of receipt of bids and there is no set minimum sale price. Such lack of detail creates a risk that the independent bids could be weak bids from purchasers that do not actively participate in the market. Furthermore, the transaction documents provide little detail regarding how servicers should conduct present value calculations when determining if a note sale should be pursued. The special servicer, Shellpoint, is an affiliate of the sponsor. The servicers in the transaction may have a commercial relationship with the sponsor outside of the transaction. These business arrangements could lead to conflicts of interest. We took this into account and adjusted our losses accordingly.

When analyzing the transaction, we reviewed the transaction's exposure to large potential indemnification payments owed to transaction parties due to potential lawsuits. In particular, we assessed the risk that the indenture trustee would be subject to lawsuits from investors for a failure to adequately enforce the R&Ws against the seller. We believe that NRMLT 2019-4 is adequately protected against such risk primarily because the loans in this transaction are highly seasoned with a weighted average seasoning of approximately 176 months. Although some loans in the pool were previously delinquent and modified, the loans all have a substantial history of payment performance. This includes payment performance during the last recession. As such, if loans in the pool were materially defective, such issues would likely have been discovered prior to the securitization. Furthermore, third party due diligence was conducted on a significant random sample of the loans for issues such as data integrity, compliance, and title. As such, we did not apply adjustments in this transaction to account for indemnification payment risk.

In addition, prior to closing, the collateral pool has approximately $1,091,768 of unreimbursed servicing advances such as taxes and insurance. The mortgage borrower is responsible for reimbursing the related servicer for the pre-existing servicing advances. The related servicer may choose to set the pre-existing advances as escrow to be repaid by the borrower as part of monthly mortgage payments. However, in the event the borrower defaults on the mortgage prior to fully repaying the pre-existing servicing advances, the related servicer will recoup the outstanding amount of pre-existing advances from the loan liquidation proceeds. The amount of pre-existing servicing advances only represents approximately 20 basis points of total pool balance. As borrowers make monthly mortgage payments, this amount would likely decrease. Moreover, our loan loss severity assumption incorporates reimbursement of servicing advances from liquidation proceeds.

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

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 Securitizations Backed by Non-Performing and Re-Performing Loans" published in February 2019 and "US RMBS Surveillance Methodology" published in February 2019. Please see the Rating 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_1189919.

The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody's estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each rated instrument.

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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Rosby Kome-Mensah
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Sonny Weng
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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