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Classic RMBS Trust, Mortgage Pass Through Notes, Series 2022-1 -- Moody's assigns definitive ratings to two classes of Canadian RMBS notes issued by Classic RMBS Trust

Rating Action: Moody's assigns definitive ratings to two classes of Canadian RMBS notes issued by Classic RMBS TrustGlobal Credit Research - 23 Feb 2022Toronto, February 23, 2022 -- Moody's Investors Service (Moody's) has assigned definitive credit ratings to the following classes of notes issued by Classic RMBS Trust (CRMBS).Issuer: Classic RMBS Trust, Mortgage Pass Through Notes, Series 2022-1CAD425,180,000, 2.630%, Class A Notes, Definitive Rating Assigned Aaa (sf)CAD50,021,000, 2.467%, Class B Notes, Definitive Rating Assigned Aa2 (sf)This transaction represents the fourth issuance by CRMBS, which is sponsored by Home Trust Company (HTC, NR). The notes are supported by 933 near prime/alt-a, fixed rate mortgage loans originated by HTC between January 2016 and December 2021, with a total balance of CAD500,216,353 as of the January 31, 2022 cut-off date. HTC originates residential mortgage loans through external mortgage brokers, referrals from conventional bank lenders or applications submitted directly to HTC. The majority of HTC's originations are through a network of independent mortgage brokers, who originate according to HTC's residential mortgage guidelines. All mortgage loans in the 2022-1 pool were extended to obligors located in Canada and are secured by Canadian residential properties.RATINGS RATIONALEThe ratings of the notes are based on an analysis of the characteristics of the underlying portfolio, protection provided by credit enhancement and the structural integrity of the transaction.In analyzing the portfolio, Moody's determined the MILAN Credit Enhancement (CE) of 13.50% and the portfolio Expected Loss (EL) of 0.75%. The MILAN CE and portfolio EL are key input parameters for Moody's cash flow model.The MILAN CE for this pool is 13.50%: This is higher than the average MILAN CE of other Canadian RMBS and covered bond transactions, but follows from our loan-by-loan analysis. The difference is largely driven by a relatively high weighted average current loan-to-value (LTV) ratio of 71.27% and a relatively weaker credit score profile. The pool also has a relatively high borrower and regional concentration, as well as the relatively high proportion of self-employed obligors and loans secured by rental properties.Portfolio expected loss of 0.75%: This is based on Moody's assessment of the lifetime loss expectation for the pool taking into account (i) the historical collateral performance of the loans to date; as provided by the seller; (ii) the current macroeconomic environment in Canada and (iii) benchmarking with similar RMBS transactions.Credit Enhancement: Credit enhancement in this transaction is primarily comprised of subordination provided by the junior tranches and excess spread. Under the sequential pay structure, all scheduled principal payments and prepayments are used to pay down the notes in order of seniority.For liquidity purposes, there is a servicing reserve account equal to three months' interest on the Class A and Class B notes. The servicing reserve account is required to be drawn by the paying agent if and to the extent that the servicer fails to deposit the required amounts into the collection account and as a result there are insufficient funds to pay Class A and Class B interest when due. This reserve acts as buffer against potential failure in the payment of interest on the Class A and Class B notes due to a servicer disruption.Operational Risk Analysis: HTC is a federal Trust company, regulated by the Office of the Superintendent of Financial Institutions (OSFI), offering residential and non-residential mortgage lending, consumer lending, and credit card services to Canadian borrowers. As of September 30, 2021, HTC's year to date residential mortgage originations totaled approximately CAD5.2 billion which is similar to the annual residential mortgage originations for fiscal year 2020. As of September 30, 2021, HTC acted as the primary servicer and owned the corresponding servicing rights on approximately CAD16.1 billion of single family residential mortgage loans. The company's mortgage servicing business is a strategically important component of its business model. We believe that HTC has adequate controls and procedures in place to provide high quality servicing.Balloon Risk Analysis: HTC (as servicer) will offer to renew all mortgage loans at the end of their contractual term, provided the borrower and the mortgage loan satisfy the renewal eligibility criteria. The renewed mortgage loans will remain in the mortgage pool and proceeds will continue to flow to the noteholders. HTC (as servicer) or any replacement servicer will extend any remaining mortgage loans at the end of their contractual term that have not been otherwise repaid or refinanced, for a period of six months or less. The extended mortgage loans will remain in the mortgage pool and proceeds will continue to flow to the noteholders. The combination of the servicer's obligation to offer to renew all loans that meet the renewal eligibility criteria at the end of their contractual term, and the requirement on the part of the servicer to extend any remaining loans that have not otherwise been refinanced or repaid, eliminates the risk that a performing borrower may be pushed into default if repayment is demanded at the end of the contractual term. This effectively mitigates the balloon risk associated with the CRMBS 2022-1 mortgage pool.The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework" published in February 2022 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1278125. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.This methodology was calibrated based on settings specific for Canada.Factors that would lead to an upgrade or downgrade of the ratings:Significantly different loss assumptions compared with our expectations at close, due to either a change in economic conditions from our central scenario forecast or idiosyncratic performance factors would lead to rating actions. For instance, should economic conditions be worse than forecast, the higher defaults and loss severities resulting from a greater unemployment, worsening household affordability and a weaker housing market could result in a downgrade of the rating. Deleveraging of the capital structure or conversely a deterioration in the note's available credit enhancement could result in an upgrade or a downgrade of the rating, respectively.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.Moody's took into account one or more third party due diligence assessment (s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the ratings. This had a neutral impact on the ratings.The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1319042.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 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. Aliya Ehmar Asst Vice President - Analyst Structured Finance Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Richard Hunt Senior Vice President/Manager Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. 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Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). 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