New York, October 13, 2020 -- Moody's Investors Service, ("Moody's") has
assigned provisional ratings to five classes of mortgage insurance credit
risk transfer notes issued by Triangle Re 2020-1 Ltd.
Triangle Re 2020-1 Ltd. is the second transaction issued
under the Triangle Re program, which transfers to the capital markets
the credit risk of private mortgage insurance (MI) policies issued by
Genworth Mortgage Insurance (Genworth, 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, Triangle Re 2020-1 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-2 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: Triangle Re 2020-1 Ltd.
Cl. M-1A, Assigned (P)Baa3 (sf)
Cl. M-1B, Assigned (P)Ba2 (sf)
Cl. M-1C, Assigned (P)Ba2 (sf)
Cl. M-2, Assigned (P)B1 (sf)
Cl. B-1, Assigned (P)B2 (sf)
Summary Credit Analysis and Rating Rationale
We expect this insured pool's aggregate exposed principal balance to incur
2.66% losses in a base case scenario, and 20.01%
losses under a Aaa stress scenario. The aggregate exposed principal
balance is the product, for all the mortgage loans covered by MI
policies, of the unpaid principal balance of each mortgage loan
and the MI coverage percentage.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of residential mortgage loans
from the current weak US economic activity and a gradual recovery for
the coming months. Although an economic recovery is underway,
it is tenuous and its continuation will be closely tied to containment
of the virus. As a result, the degree of uncertainty around
our forecasts is unusually high. We increased our model-derived
median expected losses by 15% (mean expected losses by 13.33%)
and our Aaa losses by 5% to reflect the likely performance deterioration
resulting from of a slowdown in US economic activity in 2020 due to the
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.
Each mortgage loan has an insurance coverage effective date on or after
January 1, 2020, but on or before August 31, 2020.
The reference pool consists of 221,151 prime, fixed-
and adjustable-rate, one- to four-unit,
first-lien fully-amortizing, predominantly conforming
mortgage loans with a total insured loan balance of approximately $60
billion. Most of the loans in the reference pool had a loan-to-value
(LTV) ratio at origination that was greater than 80%, with
a weighted average of 91.5%. The borrowers in the
pool have a weighted average FICO score of 746, a weighted average
debt-to-income ratio of 36.5% and a weighted
average mortgage rate of 3.5%.
The weighted average LTV of 91.5% 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 and STACR high-LTV transactions. Most of
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 97.8% covered
by BPMI and 2.2% covered by LPMI based on unpaid principal
We took into account the quality of Genworth's insurance underwriting,
risk management and claims payment process in our analysis
Lenders submit mortgage loans to Genworth for insurance either through
delegated underwriting or non-delegated underwriting program.
Under the delegated underwriting program, lenders can submit loans
for insurance without Genworth re-underwriting the loan file.
Genworth issues an MI commitment based on the lender's representation
that the loan meets the insurer's underwriting requirement. Genworth
does not allow exceptions for loans approved through its delegated underwriting
program. Lenders eligible under this program must be pre-approved
by Genworth. Under the non-delegated underwriting program,
insurance coverage is approved after full-file underwriting by
the insurer's underwriters. For Genworth's overall portfolio,
approximately 67% of the loans by unpaid principal balance are
insured through delegated underwriting and 33% through non-delegated.
Genworth generally aligns with the GSE underwriting guidelines via DU/LP.
Genworth restricts its coverage to mortgage loans that meet or exceed
its thresholds with respect to borrower Credit Scores, maximum DTI
levels, maximum loan-to-value levels and documentation
requirements. Genworth's underwriting guidelines also seek
to limit the coverage it provides for certain higher-risk mortgage
loans, including those for cash-out refinancings, second
homes or investment properties, although certain Mortgage Loans
covered by the Reinsurance Agreement will contain such higher-risk
characteristics. Servicers file a claim within 60 days of taking
title or sale of the property. Claims are submitted by uploading
or entering on Genworth's website, electronic transfer or paper.
Claims documentation include: F/C chronology, servicing notes,
invoices, BPOs, closing docs, and modification agreement.
All claims are validated and audited by Genworth. Within 90 days
after the claim settlement, a supplemental claim may be filed for
trailing advances not included on the initial claim for loss. Claims
not perfected within 120 days of receipt will be denied.
Genworth performs an internal quality assurance review on a sample basis
of delegated and non-delegated underwritten loans to ensure that
(i) the reported risk exposure of insured mortgage loans is accurately
represented; (ii) lenders are submitting loans under delegated authority
are adhering to contractual requirements and (iii) internal underwriters
are following guidelines and maintaining consistent underwriting standards
Genworth has a solid quality control process to ensure claims are paid
timely and accurately. Similar to the above procedure, Genworth's
claims management reviews a sample of paid claims each month. Findings
are used for performance management as well as identified trends.
In addition, there is strong oversight and review from internal
and external parties such as GSE audits, Department of Insurance
audits, audits from an independent account firm, and Genworth's
internal audits and compliance. Genworth is also SOX compliant.
Genworth engaged Opus CMC. 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
The scope of the third-party review is weaker than other MI CRT
transactions we rated because the sample size was small (only 350 of the
total loans in the initial reference pool as of August 2020, or
0.14% by loan count). Once the sample size was determined,
the files were selected randomly to meet the final sample count of 350
files out of a total of 221,151 loan files.
In spite of the small sample size and a limited TPR scope for Triangle
Re 2020-1, we did not make an additional adjustment to the
loss levels because, (1) approximately 34% of the loans in
the reference pool were submitted through non-delegated underwriting,
which have gone through full re-underwriting by the ceding insurer,
(2) the underwriting quality of the insured loans is monitored under the
GSEs' stringent quality control system, and (3) MI policies will
not cover any costs related to compliance violations.
Scope and results. The third-party due diligence scope focuses
on the following:
Appraisals: The third-party diligence provider also reviewed
property valuation on 100% of the loans in the sample pool.
Credit: The third-party diligence provider reviewed credit
on 100% of the loans in the sample pool. The third-party
diligence provider reviewed each mortgage loan file to determine the adherence
to stated underwriting or credit extension guidelines, standards,
criteria or other requirements provided by Genworth.
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.
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-H and the B-2 coverage level at closing.
The offered notes benefit from a sequential pay structure. The
transaction incorporates structural features such as a 10-year
bullet maturity and a sequential pay structure for the non-senior
tranches, resulting in a shorter expected weighted average life
on the offered notes.
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-2 and
Class B-1 offered notes have credit enhancement levels of 5.65%,
5.10%, 4.50%, 3.75%
and 3.50%, 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-2. Investment deficiency amount losses
are allocated in a reverse sequential order starting with the class B-1
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: 8.00%).
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) but no initial deposit amount will be made
to the account by the ceding insurer unless the premium deposit event
is triggered. 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 Baa3. 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 Baa3,
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 deal.
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 B-2 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.
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.
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
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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
Client Service: 1 212 553 1653
VP - Sr Credit Officer/Manager
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