New York, November 23, 2022 — Moody’s Investors Service (“Moody’s”) has upgraded the ratings of three classes from one Flagstar Mortgage Trust transaction. The transaction is backed by first-lien, agency eligible high balance and non-agency jumbo prime mortgage loans. All the mortgage loans were originated by Flagstar Bank, FSB either directly or indirectly through correspondents and serviced by Flagstar Bank, FSB. Wells Fargo Bank, N.A. is the master servicer.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL471698 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer. This link also contains the associated underlying collateral losses.
Issuer: FLAGSTAR MORTGAGE TRUST 2017-1
Cl. B-2, Upgraded to Aa1 (sf); previously on Jan 21, 2022 Upgraded to Aa2 (sf)
Cl. B-3, Upgraded to Aa3 (sf); previously on Jan 21, 2022 Upgraded to A1 (sf)
Cl. B-4, Upgraded to A3 (sf); previously on Jan 21, 2022 Upgraded to Baa1 (sf)
RATINGS RATIONALE
Today’s rating upgrades reflect the increased levels of credit enhancement available to the bonds, the recent performance, and Moody’s updated loss expectations on the underlying pool. In this transaction, prepayment rates, averaging 14% over the last six months, have benefited the bonds by increasing the paydown and building credit enhancement.
In our analysis we considered the additional risk posed by borrowers enrolled in payment relief programs. We increased our MILAN model-derived median expected losses by 15% and our Aaa losses by 5% to reflect the performance deterioration observed following the COVID-19 outbreak. We also consider higher adjustments if more than 10% of the collateral is either currently enrolled or was previously enrolled in a payment relief program. Specifically, we account for the marginally increased probability of default for borrowers that have either been enrolled in a payment relief program for more than 3 months or have already received a loan modification, including a deferral, since the start of the pandemic.
We estimated the proportion of loans granted payment relief in a pool based on a review of loan level cashflows. In our analysis, we considered a loan to be enrolled in a payment relief program if (1) the loan was not liquidated but took a loss in the reporting period (to account for loans with monthly deferrals that were reported as current), or (2) the actual balance of the loan increased in the reporting period, or (3) the actual balance of the loan remained unchanged in the last and current reporting period, excluding interest-only loans and pay ahead loans. Based on our analysis, the proportion of borrowers that are enrolled in payment relief plans in the underlying pool ranged between 2%-4% over the last six months.
Our updated loss expectations on the pools incorporate, amongst other factors, our assessment of the representations and warranties frameworks of the transactions, the due diligence findings of the third-party reviews received at the time of issuance, and the strength of the transaction’s originators and servicer.
Principal Methodologies
The principal methodology used in these ratings was “Moody’s Approach to Rating US RMBS Using the MILAN Framework” published in July 2022 and available at https://ratings.moodys.com/api/rmc-documents/390484. Alternatively, please see the Rating Methodologies page on https://ratings.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.
Factors that would lead to an upgrade or downgrade of the ratings:
Up
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.
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 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.
Finally, performance of RMBS continues to remain highly dependent on servicer procedures. Any change resulting from servicing transfers or other policy or regulatory change can impact the performance of these transactions. In addition, improvements in reporting formats and data availability across deals and trustees may provide better insight into certain performance metrics such as the level of collateral modifications.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are all solicited credit ratings. For additional information, please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL471698 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody’s disclosures on the following items:
– Rating Solicitation
– Issuer Participation
– Participation: Access to Management
– Participation: Access to Internal Documents
– Endorsement
– Lead Analyst
– Releasing Office
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 on https://ratings.moodys.com/rating-definitions.
The analysis includes an assessment of collateral characteristics and performance to determine the expected collateral loss or a range of expected collateral losses or cash flows to the rated instruments. As a second step, Moody’s estimates expected collateral losses or cash flows using a quantitative tool that takes into account credit enhancement, loss allocation and other structural features, to derive the expected loss for each 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 issuer/deal page for the respective issuer on https://ratings.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.
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 https://ratings.moodys.com/documents/PBC_1288235.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Anubha Yadav
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
Karandeep Bains
Senior Vice President/Manager
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
