New York, April 22, 2021 -- Moody's Investors Service, ("Moody's") has
assigned definitive ratings to nine classes of mortgage insurance credit
risk transfer notes issued by Eagle Re 2021-1 Ltd.
Eagle Re 2021-1 Ltd. is the fifth transaction issued under
the Eagle Re program, which transfers to the capital markets the
credit risk of private mortgage insurance (MI) policies issued by Radian
Guaranty Inc. (Radian, the ceding insurer) on a portfolio
of residential mortgage loans. The notes are exposed to the risk
of claims payments on the MI policies, and depending on the notes'
priority, may incur principal and interest losses when the ceding
insurer makes claims payments on the MI policies.
On the closing date, Eagle Re 2021-1 Ltd. (the issuer)
and the ceding insurer will enter into a reinsurance agreement providing
excess of loss reinsurance on mortgage insurance policies issued by the
ceding insurer on a portfolio of residential mortgage loans. Proceeds
from the sale of the notes will be deposited into the reinsurance trust
account for the benefit of the ceding insurer and as security for the
issuer's obligations to the ceding insurer under the reinsurance agreement.
The funds in the reinsurance trust account will also be available to pay
noteholders, following the termination of the trust and payment
of amounts due to the ceding insurer. Funds in the reinsurance
trust account will be used to purchase eligible investments and will be
subject to the terms of the reinsurance trust agreement.
Following the instruction of the ceding insurer, the trustee will
liquidate assets in the reinsurance trust account to (1) make principal
payments to the notes as the insurance coverage in the reference pool
reduces due to loan amortization or policy termination, and (2)
reimburse the ceding insurer whenever it pays MI claims after the Class
B-3 coverage level is written off. While income earned on
eligible investments is used to pay interest on the notes, the ceding
insurer is responsible for covering any difference between the investment
income and interest accrued on the notes' coverage levels.
The complete rating actions are as follows:
Issuer: Eagle Re 2021-1 Ltd.
Cl. M-1A, Assigned A3 (sf)
Cl. M-1B, Assigned Baa1 (sf)
Cl. M-1C, Assigned Baa3 (sf)
Cl. M-2A, Assigned Ba2 (sf)
Cl. M-2B, Assigned Ba3 (sf)
Cl. M-2C, Assigned B1 (sf)
Cl. M-2, Assigned Ba3 (sf)
Cl. B-1, Assigned B2 (sf)
Cl. B-2, Assigned B3 (sf)
Summary Credit Analysis and Rating Rationale
We expect this insured pool's aggregate exposed principal balance to incur
a baseline scenario mean loss of 1.66%, a baseline
scenario median loss of 1.36%, and a loss of 14.66%
at a stress level consistent with our Aaa ratings. The aggregate
exposed principal balance is the product, for all the mortgage loans
covered by MI policies, of (i) the unpaid principal balance of each
mortgage loan, (ii) the MI coverage percentage.
The coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond the end
of the year. While persistent virus fears remain the main risk
for a recovery in demand, the economy will recover faster if vaccines
and further fiscal and monetary policy responses bring forward a normalization
of activity. As a result, there is a heightened degree of
uncertainty around our forecasts. Our analysis has considered the
effect on the performance of consumer assets from a gradual and unbalanced
recovery in US economic activity. As a result, the degree
of uncertainty around our forecasts is unusually high. We increased
our model-derived median expected losses by 7.5%
(6.6% for the mean) and our Aaa loss by 2.5%
to reflect the likely performance deterioration resulting from the slowdown
in US economic activity due to the coronavirus outbreak. These
adjustments are lower than the 15% median expected loss and 5%
Aaa loss adjustments we made on pools from deals issued after the onset
of the pandemic until February 2021. Our reduced adjustments reflect
the fact that the loan pool in this deal does not contain any loans to
borrowers who are not currently making payments. For newly originated
loans, post-COVID underwriting takes into account the impact
of the pandemic on a borrower's ability to repay the mortgage.
For seasoned loans, as time passes, the likelihood that borrowers
who have continued to make payments throughout the pandemic will now become
non-cash flowing due to COVID-19 continues to decline.
In addition, we considered that for this transaction, similar
to other mortgage insurance credit risk transfer deals, payment
deferrals are not claimable events and thus are not treated as losses;
rather they would only result in a loss if the borrower ultimately defaults
after receiving the payment deferral and a mortgage insurance claim is
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
We calculated losses on the pool using our US Moody's Individual Loan
Analysis (MILAN) model based on the loan-level collateral information
as of the cut-off date. Loan-level adjustments to
the model results included, but were not limited to, adjustments
for origination quality.
All of the mortgage loans have an insurance coverage effective date on
or after August 1, 2020, through December 31, 2020.
The reference pool consists of 166,656 prime, fixed-
and adjustable-rate, one-to-four unit,
first-lien fully-amortizing conforming mortgage loans with
a total insured loan balance of approximately $50 billion.
All loans in the reference pool had a loan-to-value (LTV)
ratio at origination that was greater than 80% with a weighted
average of 90.5%. The borrowers in the pool have
a weighted average FICO score of 752, a weighted average debt-to-income
ratio of 35.5% and a weighted average mortgage rate of 2.97%
by unpaid balance. The weighted average risk in force (MI coverage
percentage) is approximately 22.3% of the reference pool
unpaid principal balance. The aggregate exposed principal balance
is the portion of the pool's risk in force that is not covered by existing
quota share reinsurance through unaffiliated parties.
The weighted average LTV of 90.5% is far higher than those
of recent private label prime jumbo deals, which typically have
LTVs in the high 60's range, however, it is in line with those
of recent MI CRT transactions. All these insured loans in the reference
pool were originated with LTV ratios greater than 80%. 100%
of insured loans were covered by mortgage insurance at origination with
99.6% covered by BPMI and 0.4% covered by
LPMI based on risk in force.
We took into account the quality of Radian's insurance underwriting,
risk management and claims payment process in our analysis.
Radian's underwriting requirements address credit, capacity (income),
capital (asset/equity) and collateral. It has a licensed in-house
appraiser to review appraisals.
Lenders submit mortgage loans to Radian for insurance either through delegated
underwriting or non-delegated underwriting program. Under
the delegated underwriting program, lenders can submit loans for
insurance without Radian re-underwriting the loan file.
Radian issues an MI commitment based on the lender's representation that
the loan meets the insurer's underwriting requirement. Radian allows
exceptions for loans approved through both its delegated and non-delegated
underwriting programs. Lenders eligible under the delegated program
must be pre-approved by Radian's risk management group and are
subject to targeted internal quality assurance reviews. Under the
non-delegated underwriting program, insurance coverage is
approved after full-file underwriting by the insurer's underwriters.
As of January 2021, approximately 67% of the loans in Radian's
overall portfolio are insured through delegated underwriting, 28%
through non-delegated underwriting and 5% through contract
underwriting. Radian broadly follows the GSE underwriting guidelines
via DU/LP, subject to few additional limitations and requirements.
Servicers provide Radian monthly reports of insured loans that are more
than 60-days delinquent prior to any submission of claims.
Claims are typically submitted when servicers have taken possession of
the title to the properties. Radian's claims review process include
loan files, payment history, quality review results,
and property value. Radian sends first document request letter
to Servicer within 35 days of receipt of claim, and may take additional
10 day period after receipt of response to first document request to make
additional requests. Claims are paid within 60 days after all required
documents are submitted.
Radian performs an internal quality assurance review on a sample basis
of delegated and non- delegated underwritten loans. Radian
selects a random and targeted sample of loans for review, and assesses
each loan file for data accuracy, underwriting quality and process
integrity.Third party vendors are utilized in the quality assurance
reviews as well as re-verifications and investigations.
Vendors must meet stringent approval requirements.
Radian engaged Opus Capital Markets Consultants, LLC to perform
a data analysis and diligence review of a sampling of mortgage loans files
submitted for mortgage insurance. This review included validation
of credit qualifications, verification of the presence of material
documentation as applicable to the mortgage insurance application,
updated valuation analysis and comparison, and a tape-to-file
data integrity validation to identify possible data discrepancies.
The scope does not include a compliance review.
The scope of the third-party review is weaker than other MI CRT
transactions we rated because the sample size was small (only 341 of the
total loans in the initial reference pool as of January 2021, or
0.20% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of 341
files out of a total of 168,020 loan files.
In spite of the small sample size and a limited TPR scope for Eagle Re
2021-1, we did not make an additional adjustment to the loss
levels because (1) the underwriting quality of the insured loans is monitored
under the GSEs' stringent quality control system and (2) MI policies will
not cover any costs related to compliance violations.
The loans are reviewed on a quarterly basis and depending on the timing
of the transaction relative to the quarterly review, the loans from
that production may or may not be included. The TPR available sample
does not cover a subset of pool that have MI coverage effective date on
and after October 2020, representing approximately 57% of
the pool by loan count. We did not make any adjustment because
we found no material difference in credit characteristics between the
post-October 2020 subset and the pre-October 2020 subset,
including the percentage of loans with MI policies underwritten through
non-delegated underwriting program, which ceding insurer
requires full loan origination file and performs independent re-
underwriting and quality assurance. We took this into consideration
in our TPR review.
Scope and results. The third-party due diligence scope focuses
on the following:
Appraisals: The third-party diligence provider also reviewed
property valuation on 341 loans in the sample pool. A Freddie Mac
Home Value Explorer ("HVE") was ordered on the entire population of 341
files. If the resulting value of the AVM was less than 90%
of the value reflected on the original appraisal, or if no results
were returned, a Broker Price Opinion ("BPO") was ordered on the
property. If the resulting value of the BPO was less than 90%
of the value reflected on the original appraisal, an Appraisal Review
appraisal was ordered on the property. Among the 341 loans,
one (1) loan was not assigned any grade by the third-party review
firm and all other loans were graded A. The third-party
diligence provider was not able to obtain property valuations on one mortgage
loan due to the inability to complete the field review assignment during
the due diligence review period.
Credit: The third-party diligence provider reviewed credit
on 341 loans in the sample pool. Most of the loans were graded
A. There were three loans with final grade of "C".
Data integrity: The third-party review firm was provided
a data file with loan level data, which was audited against origination
documents to determine the accuracy of data found within the data tape.
Per the due diligence report, there are twelve discrepancy findings
under four fields: DTI, maturity date, original loan
amount, and product type. The discrepancies are considered
to be non-material.
Reps & Warranties Framework
The ceding insurer does not make any representations and warranties to
the noteholders in this transaction. Since the insured mortgages
are predominantly GSE loans, the individual sellers would provide
exhaustive representations and warranties to the GSEs that are negotiated
and actively monitored. In addition, the ceding insurer may
rescind the MI policy for certain material misrepresentation and fraud
in the origination of a loan, which would benefit the MI CRT noteholders.
The transaction structure is very similar to GSE CRT transactions that
we have rated. The ceding insurer will retain the senior coverage
level A, coverage level B-3 and coverage level B-4
at closing. The offered notes benefit from a sequential pay structure.
The transaction incorporates structural features such as a 12.5-year
maturity and a sequential pay structure for the non- senior tranches,
resulting in a shorter expected weighted average life on the offered notes.
The notes will be subject to redemption prior to the maturity date at
the option of the ceding insurer upon the occurrence of an optional termination
event, including a clean-up call event and an optional call.
Funds raised through the issuance of the notes are deposited into a reinsurance
trust account and are distributed either to the noteholders, when
insured loans amortize or MI policies terminate, or to the ceding
insurer for reimbursement of claims paid when loans default. Interest
on the notes is paid from income earned on the eligible investments and
the coverage premium from the ceding insurer. Interest on the notes
will accrue based on the outstanding balance of the notes, but the
ceding insurer will only be obligated to remit coverage premium based
on each note's coverage level.
Credit enhancement in this transaction is comprised of subordination provided
by mezzanine and junior tranches. The rated Class M-1A,
Class M-1B, Class M-1C, Class M-2A,
Class M-2B, Class M-2C, Class B-1 and
Class B-2 offered notes have credit enhancement levels of 5.75%,
5.00%, 3.50%, 3.17%,
2.83%, 2.50%, 2.25%
and 2.00%, respectively. The credit risk exposure
of the notes depends on the actual MI losses incurred by the insured pool.
MI losses are allocated in a reverse sequential order starting with the
coverage level B-4. Investment deficiency amount losses
are allocated in a reverse sequential order starting with the Class B-2
notes (or Class B-3, if reopened after closing).
The floating rate note coupons reference SOFR which will be based on compounded
SOFR or Term SOFR, as applicable. Following the occurrence
of a benchmark transition event, a benchmark replacement will be
determined by the issuer, and such benchmark replacement will replace
SOFR and will be the benchmark for the next following accrual period and
each accrual period thereafter (unless and until a subsequent benchmark
transition event is determined to have occurred). Any determination
made by the issuer with respect to the occurrence of a benchmark transition
event or a benchmark replacement, and any calculation by the indenture
trustee of the applicable benchmark for an accrual period, will
be final and binding on the certificateholders in the absence of manifest
So long as the senior coverage level is outstanding, and no performance
trigger event occurs, the transaction structure allocates principal
payments on a pro-rata basis between the senior and non-senior
reference tranches. Principal is then allocated sequentially amongst
the non- senior tranches. Principal payments are all allocated
to senior reference tranches when trigger event occurs.
A trigger event with respect to any payment date will be in effect if
the coverage level amount of coverage level A for such payment date has
not been reduced to zero and either (i) the preceding three month average
of the sixty-plus delinquency amount for that payment date equals
or exceeds 75.00% of Class A subordination amount or (ii)
the subordinate percentage (or with respect to the first payment date,
the original subordinate percentage) for that payment date is less than
the target CE percentage (minimum C/E test: 7.50%).
Premium Deposit Account (PDA)
The premium deposit account will benefit the transaction upon a mandatory
termination event (e.g. the ceding insurer fails to pay
the coverage premium and does not cure, triggering a default under
the reinsurance agreement), by providing interest liquidity to the
noteholders, when combined with the income earned on the eligible
investments, of approximately 70 days while the reinsurance trust
account and eligible investments are being liquidated to repay the principal
of the notes.
On the closing date, the ceding insurer will establish a cash and
securities account (the PDA) and make deposit amount to the account following
the premium deposit event trigger. The premium deposit event will
be triggered (1) with respect to any class of notes, if the rating
of that class of notes exceeds the insurance financial strength (IFS)
rating of the ceding insurer or (2) with respect to all classes of notes,
if the ceding insurer's IFS rating falls below Baa2. If the note
ratings exceed that of the ceding insurer, the insurer will be obligated
to deposit into and maintain in the premium deposit account the required
PDA amount (see next paragraph) only for the notes that exceeded the ceding
insurer's rating. If the ceding insurer's rating falls below Baa2,
it will be obligated to deposit the required PDA amount for all classes
The required PDA amount for each class of notes and each month is equal
to the excess, if any, of (i) the coupon rate of the note
multiplied by (a) the applicable funded percentage, (b) the coverage
level amount for the coverage level corresponding to such class of notes
and (c) a fraction equal to 70/360, over (ii) two times the investment
income collected (but not yet distributed) on the eligible investments.
We believe the requirement that the PDA be funded only upon a rating trigger
event does not establish a linkage between the ratings of the notes and
the IFS rating of the ceding insurer because, 1) the required PDA
amount is small relative to the entire deal, 2) the risk of PDA
not being funded could theoretically occur only if the ceding insurer
suddenly defaults, causing a rating downgrade from investment grade
to default in a very short period, which is a highly unlikely scenario,
and 3) even if the insurer becomes insolvent, there would be a strong
incentive for the insurer's insolvency regulator to continue to make the
interest payments to avoid losing reinsurance protection provided by the
To mitigate risks associated with the ceding insurer's control of the
trust account and discretion to unilaterally determine the MI claims amounts
(i.e. ultimate net losses), the ceding insurer will
engage Opus Capital Markets Consultants, LLC, as claims consultant,
to verify MI claims and reimbursement amounts withdrawn from the reinsurance
trust account once the coverage level of Class B-3 has been written
down. The claims consultant will review on a quarterly basis a
sample of claims paid by the ceding insurer covered by the reinsurance
agreement. In verifying the amount, the claims consultant
will apply a permitted variance to the total paid loss for each MI Policy
of +/- 2%. The claims consultant will provide
a preliminary report to the ceding insurer containing results of the verification.
If there are findings that cannot be resolved between the ceding insurer
and the claims consultant, the claims consultant will increase the
sample size. A final report will be delivered by the claims consultant
to the trustee, the issuer and the ceding insurer. The issuer
will be required to provide a copy of the final report to the noteholders
and the rating agencies.
Unlike RMBS transactions where there is typically some level of independent
third party oversight by the trustee, the master servicer and/or
the securities administrator, MI CRT transactions typically do not
have such oversight. As noted, the ceding insurer not only
has full control of the trust account but can also determine, at
its discretion, the MI claims amount. The ceding insurer
will then direct the trustee to withdraw the funds to reimburse for the
claims paid. Since the trustee is not required to verify the MI
claims amount, there could be a scenario where funds are withdrawn
from the reinsurance trust account in excess of the amounts necessary
to reimburse the ceding insurer. As such, we believe the
claims consultant in this transaction will provide the oversight to mitigate
Factors that would lead to an upgrade or downgrade of the ratings:
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.
Levels of credit protection that are higher than necessary to protect
investors against current expectations of loss could drive the ratings
of the subordinate bonds 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.
The principal methodology used in these ratings was "Moody's Approach
to Rating US RMBS Using the MILAN Framework" published in April 2020 and
available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1201303.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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, 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
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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At least one ESG consideration was material to the credit rating action(s)
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Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
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Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653