New York, November 25, 2019 -- Moody's Investors Service ("Moody's") has assigned
provisional ratings to eight classes of notes issued by CIM Trust 2019-R5
("CIM 2019-R5"), which are backed by one pool of primarily
fixed-rate re-performing residential mortgage loans.
As of the cut-off date of October 31, 2019, the collateral
pool is comprised of 1,872 first lien mortgage loans with a non-zero
weighted average (WA) updated borrower FICO score of 661, a WA current
loan-to-value Ratio (LTV) of 73.4% and a total
unpaid balance of $315,039,230. Approximately
78.5% of the collateral pool consists of previously modified
mortgage loans and about 11.7% consists of adjustable-rate
mortgage loans. Approximately 2.1% of the pool balance
is non-interest bearing, which consists of both principal
reduction alternative (PRA) and non-PRA deferred principal balance.
Fay Servicing, LLC ("Fay") and Specialized Loan Servicing
LLC ("SLS") will be the primary servicers for 81.1%
and 18.9% of the pool balance, respectively.
The servicers will not advance any principal or interest on the delinquent
loans, but they will be required to advance costs and expenses incurred
in connection with a default, delinquency or other event in the
performance of its servicing obligations.
The complete rating actions are as follows:
Issuer: CIM Trust 2019-R5
Class A1, Assigned (P)Aaa (sf)
Class A1-A, Assigned (P)Aaa (sf)
Class A1-B, Assigned (P)Aaa (sf)
Class M1, Assigned (P)Aa2 (sf)
Class M2, Assigned (P)A3 (sf)
Class M3, Assigned (P)Baa3 (sf)
Class B1, Assigned (P)Ba2 (sf)
Class B2, Assigned (P)B3 (sf)
RATINGS RATIONALE
Summary Credit Analysis and Rating Rationale
Moody's expected loss on CIM 2019-R5's collateral pool is 12.00%
in our base case scenario and 36.00% at a stress level consistent
with the Aaa rating. Our loss estimates take into account the historical
performance of loans that have similar collateral characteristics as the
loans in the pool. Our credit opinion is the result of our analysis
of a wide array of quantitative and qualitative factors, a review
of the third-party review of the pool, servicing framework
and the representations and warranties framework.
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.
Collateral Description
CIM 2019-R5's collateral pool is primarily comprised of fixed-rate
re-performing mortgage loans. About 78.5%
of mortgage loans in the pool have been previously modified and about
11.7% of the mortgage loans are adjustable-rate mortgage
loans.
We based our expected losses 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 two factors that most strongly influence
a re-performing mortgage loan's likelihood of re-default
are the length of time that the loan has performed since a loan modification,
and the amount of the reduction in the monthly mortgage payment as a result
of the modification. The longer a borrower has been current on
a re-performing loan, the less likely the borrower is to
re-default. Approximately 40.5% of the borrowers
have been current on their payments for at least the past 24 months under
the MBA method of calculating delinquencies.
We estimated expected losses for the pool using two approaches --
(1) pool-level approach, and (2) re-performing loan
level analysis.
In the pool-level approach, we estimate losses on the pool
using an approach similar to our surveillance approach whereby we apply
assumptions of future delinquencies, default rates, loss severities
and prepayments based on observed performance of similar collateral.
We project future annual delinquencies for eight years by applying an
initial annual default rate and delinquency burnout factors. Based
on the loan characteristics of the pool and the demonstrated pay histories,
we expect an annual delinquency rate of 14.8% on the collateral
pool for year one. We then calculated future delinquencies on the
pool using our default burnout and voluntary conditional prepayment rate
(CPR) assumptions. The delinquency burnout factors reflect our
future expectations of the economy and the U.S. housing
market. We then aggregated the delinquencies and converted them
to losses by applying pool-specific lifetime default frequency
and loss severity assumptions. Our loss severity assumptions are
based off observed severities on liquidated seasoned loans and reflect
the lack of principal and interest advancing on the loans.
We also conducted a loan level analysis on CIM 2019-R5's
collateral pool. We applied loan-level baseline lifetime
propensity to default assumptions and considered the historical performance
of seasoned loans with similar collateral characteristics and payment
histories. We then adjusted this base default propensity up for
(1) loans that have the risk of coupon step-ups and (2) loans with
high updated loan to value ratios (LTVs). We applied a higher baseline
lifetime default propensity for interest-only loans, using
the same adjustments. To calculate the expected loss for the pool,
we applied a loan-level loss severity assumption based on the loans'
updated estimated LTVs. We further adjusted the loss severity assumption
upwards for loans in states that give super-priority status to
homeowner association (HOA) liens, to account for potential risk
of HOA liens trumping a mortgage.
As of the statistical cut-off date, approximately 2.1%
of the pool balance is non-interest bearing, which consists
of both PRA and non-PRA deferred principal balance. However,
the PRA deferred amount of $152,112 will be carved out as
a separate Class PRA note.
For non-PRA forborne amounts, the deferred balance is the
full obligation of the borrower and must be paid in full upon (i) sale
of property, (ii) voluntary payoff, or (iii) final scheduled
payment date. Upon sale of the property, the servicer therefore
could potentially recover some of the deferred amount. For loans
that default in future or get modified after the closing date, the
servicer may opt for partial or full principal forgiveness to the extent
permitted under the servicing agreement. Based on performance and
information from servicers, we applied a slightly higher default
rate than what we assumed for the overall pool given that these borrowers
have experienced past credit events that required loan modification,
as opposed to borrowers who have been current and have never been modified.
In addition, we assumed approximately 95% severity as the
servicer may recover a portion of the deferred balance. Our expected
loss does not consider the PRA deferred amount.
Transaction Structure
The securitization has a simple sequential priority of payments structure
without any cash flow triggers. The servicer will not advance any
principal or interest on delinquent loans. However, the servicer
will be required to advance costs and expenses incurred in connection
with a default, delinquency or other event in the performance of
its servicing obligations. Credit enhancement in this transaction
is comprised of subordination provided by mezzanine and junior tranches.
To the extent excess cashflow is available, it will be used to pay
down additional principal of the bonds sequentially, building overcollateralization.
We ran 96 different loss and prepayment scenarios through our cash flow
analysis. The scenarios encompass six loss levels, four loss
timing curves, and four prepayment curves.
Third Party Review
The sponsor engaged third-party diligence providers to conduct
the following due diligence reviews: (i) a title/lien review to
confirm the appropriate lien was recorded and the position of the lien
and to review for other outstanding liens and the position of those liens;
(ii) a state and federal regulatory compliance review on the loans;
(iii) a payment history review for the most recent two year period (to
the extent available) to confirm that the payment strings matched the
data supplied by or on behalf of the third-party sellers;
and (iv) a data comparison review on certain characteristics of the loans.
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 can include up to $4,000 in statutory damages,
borrowers' legal fees and other actual damages. We increased our
base case losses for these loans to account for such damages.
The seller will prepare a schedule based upon the custodian's exception
report. The seller will have 90 days to cure any exceptions related
to missing mortgages or lost note affidavits. If the seller is
unable to cure, then it will repurchase such loans within 90 days.
Similarly, if the seller is unable to cure any exceptions related
to missing intervening assignments of mortgage and/or missing intervening
endorsements of the note within a year from closing date, then the
seller will be obligated to repurchase such loans. The absence
of an intervening assignment of mortgage, original note or endorsement
could delay or prevent the servicer from foreclosing on the property or
could reduce the value of the loan. Similarly, other document
exceptions can increase the severity of a mortgage loan upon liquidation.
The diligence provider conducted a review of the title policies,
mortgages and lien searches (within twelve months of the cut-off
date) on all of the mortgage in the collateral pool to confirm the first
lien position of the mortgages and to identify other amounts owed on the
mortgage. We did not increase losses for any outstanding lien because
the remedy provider will extinguish the liens within 150 days of closing
date. If the liens are not extinguished, then remedy provider
will be obligated to repurchase the loans.
The review also consisted of validating 39 data fields for each loan in
the pool which resulted in 1,662 loans having one or more data variances.
It was determined that such data variances were attributable to missing
or defective source documentation, non-material variances
within acceptable tolerances, allocation between documented and
undocumented deferred principal balances, timing and data formatting
differences. We did not make any adjustments for these findings.
Representations & Warranties (R&W)
The R&W provider is Chimera Funding TRS LLC, wholly-owned
subsidiary of Chimera Investment Corporation (NYSE: CIM) and is
not an investment grade-rated entity. The creditworthiness
of the R&W provider determines the probability that the R&W provider
will be available and have the financial wherewithal to repurchase defective
loans upon identifying a breach. An investment grade-rated
R&W provider lends substantial strength to its R&Ws. For
financially weaker entities, we look for other offsetting factors,
such as a strong alignment of interest and enforcement mechanisms,
to derive the same level of protection. We analyze the impact of
less creditworthy R&W providers case by case, in conjunction
with other aspects of the transaction.
Mortgage loans will be reviewed for a breach of R&Ws only if one of
the following occurs (1) a loan becomes 120 days delinquent (MBA method)
or (2) a loan has been liquidated and upon such liquidation has incurred
a realized loss.
There are a few weaknesses in the enforcement mechanisms. First,
the independent reviewer is not identified at closing and, if the
owner trustee (on behalf of controlling holder) has difficulty engaging
one on acceptable terms, the controlling holder can direct the trustee
not to engage one. Furthermore, the review fees, which
the trust pays, are not agreed upon at closing and will be determined
in the future. Second, the remedies do not cover damages
owing to TILA under-disclosures. We made adjustments to
account for such damages in our analysis. Finally, there
will be no remedy for an insurance-related R&W (i.e.
any reduction in the amount paid by a mortgage insurer or title insurer).
Overall, we consider the R&W framework to be relatively stronger
compared to recent RPL securitizations rated by us because every seriously
delinquent loan is automatically reviewed, there is a well-defined
process in place to identify loans with defects on an ongoing basis and
the R&Ws do not sunset.
Trustee Indemnification
We believe there is a very low likelihood that the rated notes in CIM
2019-R5 will incur any loss from extraordinary expenses or indemnification
payments owing to potential future lawsuits against key deal parties.
First, majority of the loans are seasoned with demonstrated payment
history, reducing the likelihood of a lawsuit on the basis that
the loans have underwriting defects. Second, the transaction
has reasonably well-defined processes in place to identify loans
with defects on an ongoing basis. In this transaction a well-defined
breach discovery and enforcement mechanism reduces the likelihood that
parties will be sued for inaction.
Servicing arrangement
Fay and SLS will be the primary servicers for 81.1% and
18.9% of the collateral pool, respectively.
In the event of a termination of a servicer under the related Servicing
Agreement, a successor servicer that is reasonably acceptable to
the Class C holder will be appointed by the Depositor on behalf of the
Issuer. In addition, the servicers do not advance principal
and interest on delinquent loans in this transaction which would make
servicing transfer easier as the replacement servicer will not be obligated
to make P&I advances. We consider the overall servicing arrangement
to be credit neutral.
Other Considerations
The servicers will not commence foreclosure proceedings on a mortgage
loan unless the related servicer has notified the Class C holder (which,
as of the closing date, will be the sponsor or one of its affiliate)
at least five (5) business days in advance of the foreclosure and the
Class C holder has not objected to such action. If the Class C
holder objects, the related servicer has to obtain three appraisals
from the appraisal firms as listed in the pooling and servicing agreement.
The cost of the appraisals is borne by the Class C holder. The
Class C 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 related servicer
cannot obtain three appraisals there are alternate methods for determining
the purchase price. If the Class C holder fails to purchase the
mortgage loan within the time frame, the Class C holder forfeits
any foreclosure rights thereafter. We consider this credit neutral
because a) the appraiser is chosen by the related servicer from the approved
list of appraisers, b) the fair value of the property is decided
by the related servicer, based on third party appraisals,
and c) the Class C holder will pay the fair price and accrued interest.
Other Transaction Parties
Wells Fargo Bank, N.A. will act as the custodian,
trust administrator and paying agent. Wilmington Savings Fund Society,
FSB will be the owner trustee and U.S. Bank National Association
will be the indenture trustee.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that would lead to an upgrade of the ratings
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.
Factors that would lead to a 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 obligors defaulting 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.
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_1204644
.
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
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
