New Residential Mortgage Loan Trust 2021-INV2 -- Moody's assigns definitive ratings to prime RMBS issued by New Residential Mortgage Loan Trust 2021-INV2

Rating Action: Moody's assigns definitive ratings to prime RMBS issuedby New Residential Mortgage Loan Trust 2021-INV2Global Credit Research - 10 Dec 2021New York, December 10, 2021 -- Moody's Investors Service ("Moody's") hasassigned definitive ratings to thirty-three classes of residentialmortgage-backed securities (RMBS) issued by New Residential Mortgage LoanTrust 2021-INV2 (NRMLT 2021-INV2). The ratings range from Aaa (sf) to B2(sf).NRMLT 2021-INV2 is the second securitization of 100% GSE eligiblefirst-lien investment property mortgage loans sponsored by New ResidentialInvestment Corp. (New Residential). Approximately 64.0% and 36.0% of thepool by loan balance is originated by NewRez LLC ("NewRez") and CaliberHome Loans Inc. ("Caliber"), respectively. All the loans are underwrittenin accordance with Freddie Mac or Fannie Mae guidelines, which take intoconsideration, among other factors, the income, assets, employment andcredit score of the borrower as well as loan-to-value (LTV). These loanswere run through one of the government-sponsored enterprises' (GSE)automated underwriting systems (AUS) and received an "Approve" or "Accept"recommendation.Servicing compensation is subject to a step-up incentive fee structure.Servicing fee includes base fee plus delinquency and incentive fees.Delinquency and incentive fees will be deducted reverse sequentiallystarting from the Class B6 interest payment amount first and could resultin interest shortfall to the certificates depending on the magnitude ofthe delinquency and incentive fees.The complete rating actions are as follows:Issuer: New Residential Mortgage Loan Trust 2021-INV2Cl. A1, Definitive Rating Assigned Aaa (sf)Cl. A2, Definitive Rating Assigned Aaa (sf)Cl. A3, Definitive Rating Assigned Aa1 (sf)Cl. A4, Definitive Rating Assigned Aa1 (sf)Cl. A5, Definitive Rating Assigned Aa1 (sf)Cl. A6, Definitive Rating Assigned Aaa (sf)Cl. A7, Definitive Rating Assigned Aaa (sf)Cl. A8, Definitive Rating Assigned Aaa (sf)Cl. A9, Definitive Rating Assigned Aaa (sf)Cl. A10, Definitive Rating Assigned Aaa (sf)Cl. A11, Definitive Rating Assigned Aaa (sf)Cl. A11X*, Definitive Rating Assigned Aaa (sf)Cl. A12, Definitive Rating Assigned Aaa (sf)Cl. A13, Definitive Rating Assigned Aaa (sf)Cl. AX1*, Definitive Rating Assigned Aaa (sf)Cl. AX2*, Definitive Rating Assigned Aaa (sf)Cl. AX3*, Definitive Rating Assigned Aa1 (sf)Cl. AX4*, Definitive Rating Assigned Aa1 (sf)Cl. AX6*, Definitive Rating Assigned Aaa (sf)Cl. AX8*, Definitive Rating Assigned Aaa (sf)Cl. AX12*, Definitive Rating Assigned Aaa (sf)Cl. AX13*, Definitive Rating Assigned Aaa (sf)Cl. B, Definitive Rating Assigned A1 (sf)Cl. BX*, Definitive Rating Assigned A2 (sf)Cl. B1, Definitive Rating Assigned Aa3 (sf)Cl. B1A, Definitive Rating Assigned Aa3 (sf)Cl. BX1*, Definitive Rating Assigned Aa3 (sf)Cl. B2, Definitive Rating Assigned A2 (sf)Cl. B2A, Definitive Rating Assigned A2 (sf)Cl. BX2*, Definitive Rating Assigned A2 (sf)Cl. B3, Definitive Rating Assigned Baa2 (sf)Cl. B4, Definitive Rating Assigned Ba2 (sf)Cl. B5, Definitive Rating Assigned B2 (sf)*Reflects Interest-Only ClassesRATINGS RATIONALESummary Credit Analysis and Rating RationaleMoody's expected loss for this pool in a baseline scenario is 1.01% at themean, 0.76% at the median, and reaches 5.80% at a stress level consistentwith our Aaa ratings.We base our ratings on the certificates on the credit quality of themortgage loans, the structural features of the transaction, ourassessments of the origination quality and servicing arrangement, thestrength of the third-party due diligence and the R&W framework of thetransaction.Collateral descriptionAs of the cut-off date of November 1, 2021, the $501,183,698 poolconsisted of 1,889 mortgage loans secured by first liens on residentialinvestment properties. The average stated principal balance is $265,317and the weighted average (WA) current mortgage rate is 3.57%. The majorityof the loans have a 30-year term, with 316 loans having a term between10-29 years. All of the loans have a fixed rate. The WA original creditscore is 772 for the primary borrower only and the WA combined originalLTV and CLTV is 62.6% and 62.6%, respectively. The WA originaldebt-to-income (DTI) ratio is 34.3%. Approximately, 80.7% by loan balanceof the borrowers have more than one mortgage loan in the mortgage pool.All the loans in the pool are current as of the cut-off date. However,there are 94 loans in the pool which had 30 days delinquency which wereservice transfer related. There were 4 loans that had 60 days delinquency,but the borrower self cured.A significant percentage of the mortgage loans by loan balance (31.5%) arebacked by properties located in California. The next largest geographicconcentration of properties are Florida, New York and New Jersey, whichrepresents 6.7%, 5.4% and 5.2% by loan balance, respectively. All otherstates each represent less than 5% by loan balance. Approximately 26.1%(by loan balance) of the pool is backed by properties that are 2-4 unitresidential properties whereas loans backed by single family residentialproperties represent 46.9% (by loan balance) of the pool.Approximately 17.15% of the mortgage loans by count are "Appraisal Waiver"(AW) loans, whereby the sponsor obtained an AW for each such mortgage loanfrom Fannie Mae or Freddie Mac through their respective programs. In eachcase, neither Fannie Mae nor Freddie Mac required an appraisal of therelated mortgaged property as a condition of approving the relatedmortgage loan for purchase by Fannie Mae or Freddie Mac, as applicable.These loans may present a greater risk as the value of the relatedmortgaged properties may be less than the value ascribed to such mortgagedproperties. We made an adjustment in our analysis to account for theincreased risk associated with such loans. However, we have tempered thisadjustment by taking into account the GSEs' robust risk modeling, whichhelps minimize collateral valuation risk, as well as the GSEs'conservative eligibility requirements for AW loans which helps to supportdeal collateral quality.All the loans in the pool are current as of the cut-off date. However,there are 98 loans in the pool which have prior delinquency history, mostof which are related to servicing transfers between correspondents and theservicer. There are 4 loans that had 60-days delinquency, but the borrowerself-cured. We considered mitigating factors for those loans includingstrong borrower FICOs and low LTVs and did not make adjustment to our losslevels.Origination qualityThe majority of the loans in the pool are originated by NewRez LLC (64.0%)and Caliber Home Loans Inc. (36.0%). These loans were underwritten inconformity with GSE guidelines without any overlays. We considerorigination quality to be in line with its peers due to: (1) adequateunderwriting policies and procedures, (2) acceptable performance with lowdelinquency and repurchase and (3) adequate quality control. Therefore, wehave not applied an additional adjustment for origination quality.Servicing arrangementsWe consider the overall servicing arrangement for this pool to beadequate. We did not make any adjustments to our base case and Aaa stressloss assumptions based on the servicing arrangement. We also consider thepresence of a strong master servicer to be a mitigant against the risk ofany servicing disruptions.Servicing compensation in this transaction is based on a fee-for-serviceincentive structure. The servicer receives higher fees for labor-intensiveactivities that are associated with servicing delinquent loans, includingloss mitigation, than they receive for servicing a performing loan, whichis less labor intensive. The fee-for-service compensation is reasonableand adequate for this transaction because it better aligns the servicer'scosts with the deal's performance. Furthermore, higher fees for the morelabor-intensive tasks make the transfer of these loans to another servicereasier, should that become necessary.Third-party reviewThree third-party review (TPR) firms, Consolidated Analytics, Inc, RecovcoMortgage Management (Recovco), and Infinity IPS (Infinity) verified theaccuracy of the loan level information that we received from the sponsor.These firms conducted detailed credit, property valuation, data accuracyand compliance reviews on a total of 808 (42.8% by loan count) mortgageloans. CU scores were provided for a majority of the loans in the pool,including for loans that were not included in the due diligence sample. Avast majority of loans in the pool have a CU score >2.5 along with loansthat do not have a CU score and for which only an automated valuationmodel (AVM) and/or a broker price opinion (BPO) was ordered. We considerAVM and BPO as less reliable secondary valuation as compared to CDAs,however, due to a sufficient sample size of loans have CU score <2.5, wedid not make adjustment to the valuation waterfall.Representations and Warranties FrameworkThe R&W provider is NRZ Sponsor VIII LLC. We increased our loss levels toaccount for weakness in the overall R&W framework due to the financialweakness of the R&W provider (unrated) and the lack of repurchasemechanism for loans experiencing an early payment default. The R&Wprovider may not have the financial wherewithal to purchase defectiveloans. Moreover, unlike other comparable transactions that we have rated,the R&W framework for this transaction does not include a mechanismwhereby loans that experience an early payment default (EPD) arerepurchased. In the event of a breach of a representation and warrantythat materially and adversely affects the value of the related mortgageloan, the seller will be required to cure the breach, repurchase therelated mortgage loan, or in certain circumstances, substitute for or paythe loss amount in respect of such mortgage loan.Transaction structureThe securitization has a shifting interest structure that benefits from asenior subordination floor and a subordinate floor. Funds collected,including principal, are first used to make interest payments and thenprincipal payments to the senior bonds, and then interest and principalpayments to each subordinate bond. As in all transactions with shiftinginterest structures, the senior bonds benefit from a cash flow waterfallthat allocates all prepayments to the senior bond for a specified periodof time, and increasing amounts of prepayments to the subordinate bondsthereafter, but only if loan performance satisfies delinquency and losstests.Realized losses are allocated in a reverse sequential order, first to thelowest subordinate bond. After the balances of the subordinate bonds arewritten off, losses from the pool begin to write off the principalbalances of the senior support bonds until their principal balances arereduced to zero. Next, realized losses are allocated to super senior bondsuntil their principal balance is written off.Tail risk & subordination floorThe transaction cash flows follow a shifting interest structure thatallows subordinated bonds to receive principal payments under certaindefined scenarios. Because a shifting interest structure allowssubordinated bonds to pay down over time as the loan pool shrinks, seniorbonds are exposed to eroding credit enhancement over time and increasedperformance volatility, known as tail risk. To mitigate this risk, thetransaction provides for a senior subordination floor of 0.85% whichmitigates tail risk by protecting the senior bonds from eroding creditenhancement over time. Additionally, there is a subordination lock-outamount which is 1.00% of the closing pool balance.We calculate the credit neutral floors for a given target rating as shownin our principal methodology. The senior subordination floor and thesubordinate floor of 1.00% and 1.00%, respectively, are consistent withthe credit neutral floors for the assigned ratings.Factors that would lead to an upgrade or downgrade of the ratings:DownLevels of credit protection that are insufficient to protect investorsagainst current expectations of loss could drive the ratings down. Lossescould rise above Moody's original expectations as a result of a highernumber of obligor defaults or deterioration in the value of the mortgagedproperty securing an obligor's promise of payment. Transaction performancealso depends greatly on the US macro economy and housing market. Otherreasons for worse-than-expected performance include poor servicing, erroron the part of transaction parties, inadequate transaction governance andfraud.UpLevels of credit protection that are higher than necessary to protectinvestors against current expectations of loss could drive the ratings up.Losses could decline from Moody's original expectations as a result of alower number of obligor defaults or appreciation in the value of themortgaged property securing an obligor's promise of payment. Transactionperformance also depends greatly on the US macro economy and housingmarket.The principal methodology used in rating all classes except interest-onlyclasses was "Moody's Approach to Rating US RMBS Using the MILAN Framework"published in August 2021 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1271478. The methodologies used in rating interest-only classes were "Moody'sApproach to Rating US RMBS Using the MILAN Framework" published in August2021 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1271478and "Moody's Approach to Rating Structured Finance Interest-Only (IO)Securities" published in February 2019 and available athttps://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179.Please see the list of ratings at the top of this announcement to identifywhich classes are interest-only (indicated by the *). Alternatively,please see the Rating Methodologies page on www.moodys.com for a copy ofthese methodologies.Please note that a Request for Comment was published in which Moody'srequested market feedback on potential revisions to one or more of themethodologies used in determining these Credit Ratings. If the revisedmethodologies are implemented as proposed, it is not currently expectedthat the Credit Ratings referenced in this press release will be affected.Request for Comments can be found on the rating methodologies page onwww.moodys.com.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions andsensitivity analysis, see the sections Methodology Assumptions andSensitivity to Assumptions in the disclosure form. Moody's Rating Symbolsand Definitions can be found at:https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.Further information on the representations and warranties and enforcementmechanisms available to investors are available onhttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1313188.The analysis relies on an assessment of collateral characteristics todetermine the collateral loss distribution, that is, the function thatcorrelates to an assumption about the likelihood of occurrence to eachlevel of possible losses in the collateral. As a second step, Moody'sevaluates each possible collateral loss scenario using a model thatreplicates the relevant structural features to derive payments andtherefore the ultimate potential losses for each rated instrument. Theloss a rated instrument incurs in each collateral loss scenario, weightedby 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 thatstress factors contributing to sensitivity of ratings and take intoaccount the likelihood of severe collateral losses or impaired cash flows.Moody's weights the impact on the rated instruments based on itsassumptions of the likelihood of the events in such scenarios occurring.For ratings issued on a program, series, category/class of debt orsecurity this announcement provides certain regulatory disclosures inrelation to each rating of a subsequently issued bond or note of the sameseries, category/class of debt, security or pursuant to a program forwhich the ratings are derived exclusively from existing ratings inaccordance with Moody's rating practices. For ratings issued on a supportprovider, this announcement provides certain regulatory disclosures inrelation to the credit rating action on the support provider and inrelation to each particular credit rating action for securities thatderive their credit ratings from the support provider's credit rating. Forprovisional ratings, this announcement provides certain regulatorydisclosures in relation to the provisional rating assigned, and inrelation to a definitive rating that may be assigned subsequent to thefinal issuance of the debt, in each case where the transaction structureand terms have not changed prior to the assignment of the definitiverating in a manner that would have affected the rating. For furtherinformation please see the ratings tab on the issuer/entity page for therespective issuer on www.moodys.com.For any affected securities or rated entities receiving direct creditsupport from the primary entity(ies) of this credit rating action, andwhose ratings may change as a result of this credit rating action, theassociated regulatory disclosures will be those of the guarantor entity.Exceptions to this approach exist for the following disclosures, ifapplicable to jurisdiction: Ancillary Services, Disclosure to ratedentity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designatedagent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy forDesignating and Assigning Unsolicited Credit Ratings available on itswebsite www.moodys.com.Regulatory disclosures contained in this press release apply to the creditrating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social andgovernance (ESG) risks in our credit analysis can be found athttp://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement wasissued by one of Moody's affiliates outside the EU and is endorsed byMoody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322,Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No1060/2009 on Credit Rating Agencies. Further information on the EUendorsement status and on the Moody's office that issued the credit ratingis available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement wasissued by one of Moody's affiliates outside the UK and is endorsed byMoody's Investors Service Limited, One Canada Square, Canary Wharf, LondonE14 5FA under the law applicable to credit rating agencies in the UK.Further information on the UK endorsement status and on the Moody's officethat issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead ratinganalyst 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 foradditional regulatory disclosures for each credit rating.Ruomeng CuiVice President - Senior AnalystStructured Finance GroupMoody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007U.S.A.JOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653Sonny WengVP - Sr Credit Officer/ManagerStructured Finance GroupJOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653Releasing Office:Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007U.S.A.JOURNALISTS: 1 212 553 0376Client Service: 1 212 553 1653© 2021 Moody's Corporation, Moody's Investors Service, Inc.,Moody's Analytics, Inc. and/or their licensors and affiliates(collectively, "MOODY'S"). 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