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Rating Action:

Moody's assigns definitive ratings to Prime RMBS issued by CIM Trust 2019-INV1

28 Mar 2019

New York, March 28, 2019 -- Moody's Investors Service has assigned definitive ratings to 19 classes of residential mortgage-backed securities (RMBS) issued by CIM Trust 2019-INV1 (CIM 2019-INV1). The ratings range from Aaa (sf) to B2 (sf).

CIM 2019-INV1, the first rated issue from Chimera Trust in 2019, is a prime RMBS securitization of fixed-rate investment property mortgage loans secured by first liens on agency-eligible non-owner occupied residential properties with 30-year original term to maturity. All of the loans are underwritten in accordance with Freddie Mac or Fannie Mae guidelines, which take into consideration, among other factors, the income, assets, employment and credit score of the borrower. All the loans were run through one of the government-sponsored enterprises' (GSE) automated underwriting systems (AUS) and received an "Approve" or "Accept" recommendation.

The mortgage loans for this transaction were acquired by the affiliates of the sponsor, Chimera Funding TRS LLC and Chimera Residential Mortgage Inc. (the sellers) from Bank of America, National Association (BANA). BANA acquired the mortgage loans through its whole loan purchase program from various originators.

Shellpoint Mortgage Servicing (Shellpoint) and TIAA, FSB will service 91% and 9% of the aggregate balance of the mortgage pool, respectively, and Wells Fargo Bank, N.A. (Aa2) will be the master servicer. The servicers will be primarily responsible for funding certain servicing advances and delinquent scheduled interest and principal payments for the mortgage loans, unless the servicer determines that such amounts would not be recoverable. The master servicer is obligated to fund any required monthly advances if the servicer fails in its obligation to do so. The master servicer and servicer will be entitled to reimbursements for any such monthly advances from future payments and collections (including insurance and liquidation proceeds) with respect to those mortgage loans.

CIM 2019-INV1 has a shifting interest structure with a five-year lockout period that benefits from a senior subordination floor and a subordinate floor. We coded the cash flow to each of the certificate classes using Moody's proprietary cash flow model. In our analysis of tail risk, we considered the increased risk from borrowers with more than one mortgage in the pool.

The complete rating actions are as follows:

Issuer: CIM Trust 2019-INV1

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

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

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

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

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

Cl. A-6, Definitive Rating Assigned Aaa (sf)

Cl. A-7, Definitive Rating Assigned Aaa (sf)

Cl. A-8, Definitive Rating Assigned Aaa (sf)

Cl. A-9, Definitive Rating Assigned Aaa (sf)

Cl. A-10, Definitive Rating Assigned Aaa (sf)

Cl. A-11, Definitive Rating Assigned Aa1 (sf)

Cl. A-12, Definitive Rating Assigned Aa1 (sf)

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

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

Cl. B-2, Definitive Rating Assigned A1 (sf)

Cl. B-2A, Definitive Rating Assigned A1 (sf)

Cl. B-3, Definitive Rating Assigned A3 (sf)

Cl. B-4, Definitive Rating Assigned Ba1 (sf)

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

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

Moody's expected cumulative net loss on the aggregate pool is 1.00% in a base scenario and reaches 11.30% at a stress level consistent with the Aaa ratings.

Our loss estimates are based on a loan-by-loan assessment of the securitized collateral pool as of the cut-off date using Moody's Individual Loan Level Analysis (MILAN) model. Loan-level adjustments to the model included adjustments to borrower probability of default for higher and lower borrower debt-to-income ratios (DTIs), for borrowers with multiple mortgaged properties, self-employed borrowers, and for risks related to mortgaged properties in Homeownership associations (HOAs) in super lien states. Our final loss estimates also incorporate adjustments for originator assessments and the strength of the representation and warranty (R&W) framework.

We base our definitive ratings on the certificates on the credit quality of the mortgage loans, the structural features of the transaction, our assessments of origination quality and servicing arrangement, the strength of the third party due diligence and the R&W framework of the transaction.

Collateral Description

The CIM 2019-INV1 transaction is a securitization of 1,301 investment property mortgage loans secured by first liens on one-to-four family residential investment properties, planned unit developments and condominiums with an unpaid principal balance of $382,091,125. All the loans have a 30-year original term to maturity. The mortgage pool has a weighted average (WA) seasoning of six months. The loans in this transaction have strong borrower characteristics with a WA original primary borrower FICO score of 769 and a WA original combined loan-to-value ratio (CLTV) of 68.7%. In addition, 33% of the borrowers are self-employed and refinance loans comprise about 33% of the aggregate pool. The pool has a high geographic concentration with 35% of the aggregate pool located in California and 13% located in the Los Angeles-Long Beach-Anaheim, CA MSA. The characteristics of the loans underlying the pool are generally comparable to CIM 2018-INV1.

Three loans were dropped from the pool between provisional ratings and definitive ratings due to suspected early payment default (EPD). After further review, the loans ended up becoming current and it was identified that the payment disruption was due to servicing transfer related issues. However, the EPD proceeding had already started and the loans were dropped from the pool. There were no material changes to the collateral due to loan drops.

About 5.4% of the aggregate stated balance of the Mortgage Loans as of the Cut-off Date, have been 30 days or more delinquent and are now current under the methodology used by the Mortgage Bankers Association (the "MBA Method"). All such delinquencies occurred around the time of a servicing transfer and the Sponsor believes that these delinquencies were related to the transfer of the servicing on such Mortgage Loans. The servicer confirmed that there were issues with contacting the borrower and transferring automated clearing house (ACH) but were subsequently resolved. All the loans post transfer have been current. Out of the total 66 mortgage loans with delinquent history, four loans have been 90 days or more delinquent. We took into consideration updated FICO scores for borrowers with over 90 days delinquency and adjusted our base case and Aaa loss assumptions accordingly.

Origination

Loans in the pool were originated by 10 different originators. The largest originators in the pool with more than 10% by balance are Caliber Home Loans, Inc. (28%), and Home Point Financial Corporation (23%). We took into consideration the origination quality of these originators and factored it in our analysis. We increased our base case and Aaa loss assumption for the loans originated by Home Point Financial Corporation due to limited historical performance data, reduced retail footprints which will limit the seller's oversight on originations and lack of strong controls to support recent rapid growth.

Third Party Review and Reps & Warranties (R&W)

Two third party review (TPR) firms verified the accuracy of the loan-level information that we received from the sponsor. These firms conducted detailed credit, property valuation, data integrity and regulatory compliance reviews on 100% of the mortgage pool. The TPR results indicated compliance with the originators' and aggregators' underwriting guidelines for the vast majority of the loans, no material compliance issues, and no material appraisal defects.

Each originator will provide comprehensive loan level reps and warranties for their respective loans. BANA will assign each originator's R&W to the Sellers (Chimera Funding TRS LLC and Chimera Residential Mortgage Inc.), who will in turn assign to the depositor, which will assign to the trust. To mitigate the potential concerns regarding the originators' ability to meet their respective R&W obligations, the sellers will backstop the R&Ws for all originators loans. The sellers obligation to backstop third party R&Ws will terminate 5 years after the closing date, subject to certain performance conditions. The sellers will also provide the gap reps. The R&W framework is adequate in part because the results of the independent TPRs revealed a high level of compliance with underwriting guidelines and regulations, as well as overall adequate appraisal quality. These results give confidence that the loans do not systemically breach the R&Ws the originators have made and that the originators are unlikely to face material repurchase requests in the future. The loan-level R&Ws are strong and, in general, either meet or exceed the baseline set of credit-neutral R&Ws we identified for US RMBS. Among other considerations, the R&Ws address property valuation, underwriting, fraud, data accuracy, regulatory compliance, the presence of title and hazard insurance, the absence of material property damage, and the enforceability of mortgage.

Tail Risk and Subordination Floor

The transaction cash flows follow a shifting interest structure that allows subordinated bonds to receive principal payments under certain defined scenarios. Because a shifting interest structure allows subordinated bonds to pay down over time as the loan pool shrinks, senior bonds are exposed to increased performance volatility, known as tail risk. The transaction provides for a senior subordination floor of 1.60% of the closing pool balance, which mitigates tail risk by protecting the senior bonds from eroding credit enhancement over time. Additionally there is a subordination lock-out amount which is 0.70% of the closing pool balance.

Exposure to Extraordinary expenses

Extraordinary trust expenses in this transaction are deducted from net WAC. We believe there is a very low likelihood that the rated certificates in CIM 2019-INV1 will incur any losses from extraordinary expenses or indemnification payments from potential future lawsuits against key deal parties. Firstly, the loans are of prime quality and were originated under a regulatory environment that requires tighter controls for originations than pre-crisis, which reduces the likelihood that the loans have defects that could form the basis of a lawsuit. Secondly, the transaction has reasonably well-defined processes in place to identify loans with defects on an ongoing basis. In this transaction, an independent breach reviewer must review loans for breaches of representations and warranties when certain clearly defined triggers have been breached which reduces the likelihood that parties will be sued for inaction. Furthermore, the issuer has disclosed results of the credit, compliance and valuation review of 100% of the mortgage loans by independent third parties.

Other Considerations

In CIM 2019-INV1, the controlling holder has the option to hire at its own expense the independent reviewer upon the occurrence of a review event. If there is no Controlling Holder (no single entity holds a majority of the Class Principal Amount of the most subordinate class of certificates outstanding), the trustee will appoint an independent reviewer at the cost of the trust. However, if the controlling holder does not hire the independent reviewer, the holders of more than 50% of the aggregate voting interests of all outstanding certificates may direct (at their expense) the trustee to appoint an independent reviewer. In this transaction, the controlling holder can be the depositor or a seller (or an affiliate of these parties). If the controlling holder is affiliated with the depositor, seller or Sponsor, then the controlling holder may not be motivated to discover and enforce R&W breaches for which its affiliate is responsible.

The servicer will not commence foreclosure proceedings on a mortgage loan unless the servicer has notified the controlling holder at least five business days in advance of the foreclosure and the controlling holder has not objected to such action. If the controlling holder objects, the servicer has to obtain three appraisals from the appraisal firms as listed in the pooling and servicing agreement. The cost of the appraisals are borne by the controlling holder. The controlling holder will be required to purchase such mortgage loan at a price equal to the highest of the three appraisals plus accrued and unpaid interest on such mortgage loan as of the purchase date. If the servicer cannot obtain three appraisals there are alternate methods for determining the purchase price. If the controlling holder fails to purchase the mortgage loan within the time frame, the controlling holder forfeits any foreclosure rights thereafter. We consider this credit neutral because a) the appraiser is chosen by the servicer from the approved list of appraisers, b) the fair value of the property is decided by the servicer, based on third party appraisals, and c) the controlling holder will pay the fair price and accrued interest.

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

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 Moody's 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.

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 Moody's 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.

Methodology

The principal methodology used in these ratings was "Moody's Approach to Rating US Prime RMBS" published in November 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

In addition, Moody's publishes a weekly summary of structured finance credit ratings and methodologies, available to all registered users of our website, www.moodys.com/SFQuickCheck.

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_1167670.

The analysis relies on an assessment of collateral characteristics to determine the collateral loss distribution, that is, the function that correlates to an assumption about the likelihood of occurrence to each level of possible losses in the collateral. As a second step, Moody's evaluates each possible collateral loss scenario using a model that replicates the relevant structural features to derive payments and therefore the ultimate potential losses for each rated instrument. The loss a rated instrument incurs in each collateral loss scenario, weighted by assumptions about the likelihood of events in that scenario occurring, results in the expected loss of the 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 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 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.

Siva Ranjani Mettapalayam Pannir Selvam
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

Sang Shin
VP-Sr Credit Officer/Manager
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.
© 2019 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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