Rating Action: Moody's assigns provisional ratings to prime RMBS issued by New Residential Mortgage Loan Trust 2022-INV1Global Credit Research - 03 Mar 2022New York, March 03, 2022 -- Moody's Investors Service ("Moody's") has assigned provisional ratings to 9 classes of residential mortgage-backed securities (RMBS) issued by New Residential Mortgage Loan Trust 2022-INV1 (NRMLT 2022-INV1).NRMLT 2022-INV1 is the first securitization of 100% GSE eligible first-lien investment property mortgage loans sponsored by New Residential Investment Corp. (New Residential) in 2022, and the third overall issuance from the sponsor this year. Approximately 61.9% and 38.1 of the pool by loan balance is originated by Caliber Home Loans Inc. (Caliber) and NewRez LLC (NewRez), respectively. Overall, the credit quality of the mortgage loans backing this transaction is in line with other transactions issued by other prime issuers.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 sequentially starting from the Class B6 interest payment amount first and could result in interest shortfall to the certificates depending on the magnitude of the delinquency and incentive fees.The complete rating actions are as follows:Issuer: New Residential Mortgage Loan Trust 2022-INV1 Cl. A1, Assigned (P)Aaa (sf) Cl. A2, Assigned (P)Aaa (sf) Cl. A5, Assigned (P)Aaa (sf) Cl. A6, Assigned (P)Aaa (sf) Cl. A7, Assigned (P)Aaa (sf) Cl. A8, Assigned (P)Aaa (sf) Cl. AX2*, Assigned (P)Aaa (sf)Cl. AX5*, Assigned (P)Aaa (sf)Cl. AX7*, Assigned (P)Aaa (sf)*Reflects Interest-Only ClassesRATINGS RATIONALESummary Credit Analysis and Rating RationaleMoody's expected loss for this pool in a baseline scenario is 1.20% at the mean, 0.90% at the median, and reaches 6.96% at a stress level consistent with our Aaa ratings.We base our ratings on the certificates on the credit quality of the mortgage loans, the structural features of the transaction, our assessments of the origination quality and servicing arrangement, the strength of the third-party due diligence (TPR) and the representations and warranties (R&W) framework of the transaction.Collateral descriptionAs of the cut-off date of February 1, 2022, the $318,078,815 pool consisted of 943 mortgage loans secured by first liens on residential investment properties. All of the mortgage loans are underwritten in accordance with Freddie Mac or Fannie Mae guidelines (collectively, GSEs), which take into consideration, among other factors, the income, assets, employment and credit score of the borrower as well as loan-to-value (LTV). These loans were run through one of the GSEs' automated underwriting systems (AUS) and received an "Approve" or "Accept" recommendation. All the loans in the pool are current as of the cut-off date.The average stated principal balance is $337,305 and the weighted average (WA) current mortgage rate is 3.6%. The majority of the mortgage loans have a 30-year term, with 38 of the mortgage loans having a term between 15-28 years. All of the loans have a fixed rate. The WA original credit score is 770 for the primary borrower only and the WA combined original LTV and CLTV is 64.7% and 64.7%, respectively. The WA original debt-to-income (DTI) ratio is 35.6%. A significant percentage of the mortgage loans by loan balance (30.5%) are backed by properties located in California. The next largest geographic concentration of properties are Washington, Florida and Texas and, which represents 9.1%, 8.4% and 6.1% by loan balance, respectively. All other states each represent less than 5% by loan balance.Approximately 0.5% (by UPB) of the mortgage loans are "Appraisal Waiver" (AW) loans, whereby the sponsor obtained an AW for each such mortgage loan from Fannie Mae or Freddie Mac through their respective programs. We made an adjustment in our analysis to account for the increased risk associated with AW loans.Origination qualityThe majority of the loans in the pool are originated by Caliber Home Loans Inc. (approximately 61.9% by UPB) and NewRez LLC (approximately 38.1% by UPB). These loans were underwritten in conformity with GSE guidelines without any overlays. We consider origination quality to be in line with its peers due to: (1) adequate underwriting policies and procedures, (2) acceptable performance with low delinquency and repurchase and (3) adequate quality control. Therefore, we have not applied an additional adjustment for origination quality.Servicing arrangementsWe consider the overall servicing arrangement for this pool to be adequate. We did not make any adjustments to our base case and Aaa stress loss assumptions based on the servicing arrangement. We also consider the presence of a strong master servicer to be a mitigant against the risk of any servicing disruptions. Servicing compensation in this transaction is based on a fee-for-service incentive structure.Third-party reviewThe compliance, credit, property valuation, and data integrity portion of the TPR was conducted on a random sample of approximately 30.2% (by loan count) of the initial population of the pre-securitization mortgage loans. We calculated the credit neutral sample size using a confidence interval, error rate and a precision level of 95%/5%/2%, respectively. The number of mortgage loans that went through a full due diligence review is below our calculated threshold. With sampling, there is a risk that loan defects may not be discovered and such mortgage loans would remain in the pool. Moreover, vulnerabilities of the R&W framework, such as the lack of an automatic review of R&Ws by independent reviewer and the weaker financial strength of the R&W provider, reduce the likelihood that such defects would be discovered and cured during the transaction's life. We made an adjustment to loss levels to account for this risk.R&W frameworkThe R&W provider, NRZ Sponsor V LLC (NRZ), may not have the financial wherewithal to purchase defective loans. Moreover, unlike other transactions that we have rated, the R&W framework for this transaction does not include a mechanism whereby loans that experience an early payment default (EPD) are repurchased. We adjusted our Aaa CE and expected losses to account for these weaknesses in the R&W framework.Transaction structureThe securitization has a shifting interest structure that benefits from a senior subordination floor and a subordinate floor. Funds collected, including principal, are first used to make interest payments and then principal payments to the senior bonds, and then interest and principal payments to each subordinate bond. As in all transactions with shifting interest structures, the senior bonds benefit from a cash flow waterfall that allocates all prepayments to the senior bond for a specified period of time, and increasing amounts of prepayments to the subordinate bonds thereafter, but only if loan performance satisfies delinquency and loss tests.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 super senior bonds until their principal balance is written off.Tail risk & subordination floorThe transaction cash flows follow 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 eroding credit enhancement over time and increased performance volatility, known as tail risk. To mitigate this risk, the transaction provides for a senior subordination floor of 1.20% 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 1.20% of the closing pool balance.We calculate the credit neutral floors for a given target rating as shown in our principal methodology. The senior subordination floor and the subordinate floor of 1.20% and 1.20%, respectively, are consistent with the 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 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.UpLevels 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.The principal methodology used in rating all classes except interest-only classes was "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in February 2022 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1305403. The methodologies used in rating interest-only classes were "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in February 2022 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1305403 and "Moody's Approach to Rating Structured Finance Interest-Only (IO) Securities" published in February 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1111179. Please see the list of ratings at the top of this announcement to identify which classes are interest-only (indicated by the *). Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. REGULATORY DISCLOSURESFor 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.Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1320560.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.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.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. Philip Rukosuev Asst Vice President - Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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