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Rating Action:

Moody's assigns provisional ratings to Prime RMBS issued by TIAA Bank Mortgage Loan Trust 2018-2

15 Jun 2018

New York, June 15, 2018 -- Moody's Investors Service ("Moody's") has assigned provisional ratings to 28 classes of residential mortgage-backed securities (RMBS) issued by TIAA Bank Mortgage Loan Trust 2018-2 (TBMLT 2018-2). The ratings range from (P)Aaa (sf) to (P)Ba2 (sf).

TIAA Bank Mortgage Loan Trust 2018-2 (TBMLT 2018-2) is the second transaction entirely backed by loans originated by TIAA, FSB since 2013. In June 2017, EverBank was acquired by Teachers Insurance and Annuity Association of America (Aa1). TIAA, FSB (TIAA) is the successor to EverBank. TBMLT 2018-2 consists of prime jumbo pools underwritten to TIAA's underwriting standards and serviced by TIAA. All of the mortgage loans in TBMLT 2018-2 are designated as qualified mortgage (QM) safe harbor loans. TIAA will service the loans and Wells Fargo Bank, N.A. (Aa2) will be the master servicer.

The complete rating actions are as follows:

Issuer: TIAA Bank Mortgage Loan Trust 2018-2

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

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

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

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

Cl. A-5, Assigned (P)Aaa (sf)

Cl. A-6, Assigned (P)Aaa (sf)

Cl. A-7, Assigned (P)Aaa (sf)

Cl. A-8, Assigned (P)Aaa (sf)

Cl. A-9, Assigned (P)Aaa (sf)

Cl. A-10, Assigned (P)Aaa (sf)

Cl. A-11, Assigned (P)Aaa (sf)

Cl. A-12, Assigned (P)Aaa (sf)

Cl. A-13, Assigned (P)Aaa (sf)

Cl. A-14, Assigned (P)Aaa (sf)

Cl. A-15, Assigned (P)Aaa (sf)

Cl. A-16, Assigned (P)Aaa (sf)

Cl. A-17, Assigned (P)Aaa (sf)

Cl. A-18, Assigned (P)Aaa (sf)

Cl. A-19, Assigned (P)Aa1 (sf)

Cl. A-20, Assigned (P)Aa1 (sf)

Cl. A-21, Assigned (P)Aa1 (sf)

Cl. A-22, Assigned (P)Aaa (sf)

Cl. A-23, Assigned (P)Aaa (sf)

Cl. A-24, Assigned (P)Aaa (sf)

Cl. B-1, Assigned (P)Aa3 (sf)

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

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

Cl. B-4, Assigned (P)Ba2 (sf)

RATINGS RATIONALE

Summary Credit Analysis and Rating Rationale

Moody's expected cumulative net loss on the aggregate pool is 0.35% in a base scenario and reaches 4.35% 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 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 DTIs, borrowers with multiple mortgaged properties, self-employed borrowers, origination channels and at a pool level, for the default risk of HOA properties in super lien states. The adjustment to our Aaa stress loss above the model output also includes adjustments related to aggregator and originators assessments. The model combines loan-level characteristics with economic drivers to determine the probability of default for each loan, and hence for the portfolio as a whole. Severity is also calculated on a loan-level basis. The pool loss level is then adjusted for borrower, zip code, and MSA level concentrations.

Collateral Description

TBMLT 2018-2 is a securitization of 450 primarily 30-year fixed-rate prime residential mortgages (one loan is 25-year fixed). Borrowers of the mortgage loans backing this transaction have strong credit profile demonstrated by strong credit scores, high percentage of equity and significant liquid reserves. The credit quality of the transaction is in line with recent prime jumbo transactions that we have rated.

We decreased our loss levels due to TIAA's strength as an originator of prime jumbo loans. We believe that TIAA is stronger than its peers due to its conservative underwriting standards, solid performance history and strong quality control policies and procedures.

Borrowers of the mortgage loans backing this transaction have a demonstrated ability to save and to manage credit. On average, borrowers have 26.1% equity in the properties backing the mortgage loans. In addition, approximately 72.4% of borrowers have more than 24 months of liquid cash reserves or enough money to pay the mortgage for two years should there be an interruption to the borrower's cash flow. Consistent with prudent credit management, the borrowers have high FICO scores, with a weighted average score of 774. In general, the borrowers have high income, significant liquid assets and a stable employment history, all of which have been verified as part of the underwriting process and reviewed by the TPR firm.

The transaction includes mortgage loans backed by properties located in areas designated by the Federal Emergency Management Authority (FEMA) for federal assistance in the last 12 months. The sponsor ordered inspections of mortgaged properties located in counties where borrowers were eligible for individual assistance from FEMA. No material damage was discovered. However, the sponsor did not order inspections on properties located in areas designated by FEMA as public assistance areas. We note that mortgage loans backed by properties located in areas affected by Hurricane Harvey, Hurricane Irma and wildfires show zero delinquencies. Moreover, the transaction includes an unqualified representation that the pool does not include properties with material damage that would adversely affect the value of the mortgaged property.

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

One third-party due diligence firm verified the accuracy of the loan level information that the sponsor gave us. This TPR firm conducted detailed credit, property valuation, data accuracy and compliance reviews on 100% of the mortgage loans in the collateral pool. The TPR results indicate that the majority of reviewed loans were in compliance with originator's underwriting guidelines, no material compliance or data issues, and no material appraisal defects.

We consider the strength of the R&W framework in TBMLT 2018-2 to be adequate. Our analysis of the R&W framework considers the R&Ws, enforcement mechanisms and creditworthiness of the R&W provider. The sponsor is TIAA, FSB whose parent, TIAA has an insurance financial strength rating at Aa1 and a long-term issuer rating at Aa2. The sponsor has provided unambiguous representations and warranties (R&Ws) with no material knowledge qualifiers and not subject to a sunset. There is a provision for binding arbitration in the event of a dispute between investors and the R&W provider concerning R&W breaches.

However, the R&W framework in TBMLT 2018-2 differs from other prime jumbo transactions because breach review is not automatic. Once a review trigger has been hit (i.e. 120-day delinquency), it is the responsibility of the controlling holder, which is the holder of majority of the most subordinate certificates, and subsequently the senior holder group to engage an independent reviewer and to bear the costs of the review, even if a breach is discovered (unless the R&W is an "intrinsic representation," then the sponsor will bear the cost of review). If the controlling holder and the senior holder group elect not to engage an independent reviewer to conduct a breach review, the loan will not be reviewed, which may result in systemic defects to go undetected. In our analysis, we considered the incentives of the controlling holder and the senior holder group, that a third-party due diligence firm has performed a 100% review of the mortgage loans as well as the early payment default protection in this transaction.

Trustee/Custodian and Master Servicer/Securities Administrator

U.S. Bank National Association (U.S. Bank) (A1) will act as the trustee for this transaction. In its capacity as custodian, U.S. Bank will hold the collateral documents, which include, the original note and mortgage and any intervening assignments of mortgage.

Wells Fargo Bank, N.A. (Wells Fargo) (Aa2) provides oversight of the servicer. We consider Wells Fargo as a strong master servicer of residential loans. Wells Fargo's oversight encompasses loan administration, default administration, compliance and cash management. Wells Fargo will also act as securities administrator, whose role includes paying the issued securities.

Other Considerations

Servicer optional purchase of delinquent loans: The servicer, TIAA, has the option to purchase any mortgage loan which is 90 days or more delinquent, which may result in the step-down test used in the calculation of the senior prepayment percentage to be satisfied when otherwise it would not have been. Moreover, because the purchase may occur prior to the breach review trigger of 120 days delinquency, the loan may not be reviewed for breaches of representations and warranties and thus, systemic defects may go undetected. In our analysis, we considered that the loans will be purchased by the servicer at par, the servicer is limited to purchasing loans up to 10% of the aggregate cut-off date balance and that a third-party due diligence firm has performed a 100% review of the mortgage loans. Moreover, the reporting for this transaction will list the mortgage loans purchased by the servicer.

Extraordinary expenses and risk of trustee holdback: Extraordinary trust expenses in the TBMLT 2018-2 transaction are deducted from Net WAC as opposed to available distribution amount. We believe there is a very low likelihood that the rated certificates in TBMLT 2018-2 will incur any losses from extraordinary expenses or indemnification payments from potential future lawsuits against key deal parties. First, the loans are prime quality, 100% qualified mortgages 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. Second, 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. Third, the issuer has disclosed the results of a credit, compliance and valuation review of all of the mortgage loans by an independent third party. 100% of the loans were included in the due diligence review. Finally, the performance of past EBMLT transactions have been well within expectation.

Tail Risk & Subordination Floor

The transaction has 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 1.80% 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 1.35% of the closing pool balance.

Transaction Structure

The transaction is structured as a one pool shifting interest structure in which the senior bonds benefit from a senior floor and a subordination floor. Funds collected, including principal, are first used to make interest payments to the senior bonds. Next principal payments are made to the senior bonds and then interest and principal payments are paid to the subordinate bonds in sequential order, subject to the subordinate class percentage of the subordinate principal distribution amounts.

Realized losses are allocated in a reverse sequential order, first to the lowest subordinate bond. After the balances of the subordinate bonds are written off, losses from the pool begin to write off the principal balances of the senior support bonds until their principal balances are reduced to zero. Next realized losses are allocated to the super senior bonds until their principal balances are written off.

As in all transactions with shifting-interest structures, the senior bonds benefit from a cash flow waterfall that allocates all prepayments to the senior bonds for a specified period of time, and allocates increasing amounts of prepayments to the subordinate bonds thereafter only if loan performance satisfies both delinquency and loss tests.

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 on February 2015. 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_1126917.

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.

Sonny Weng
Vice President - Senior 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

Yehudah Forster
Senior Vice President
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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