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FLAGSTAR MORTGAGE TRUST 2017-1 -- Moody's upgrades 46 bonds from nine transactions issued by Flagstar Mortgage Trust between 2017 and 2020

·21 min read

Rating Action: Moody's upgrades 46 bonds from nine transactions issued by Flagstar Mortgage Trust between 2017 and 2020Global Credit Research - 21 Jan 2022New York, January 21, 2022 -- Moody's Investors Service ("Moody's") has upgraded the ratings of 46 classes of Flagstar Mortgage Trust. The transactions are securitizations of fixed rate, first-lien prime jumbo and agency eligible mortgage loans.Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBS_ARFTL461619 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 2017-1Cl. B-1, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa1 (sf)Cl. B-2, Upgraded to Aa2 (sf); previously on Oct 30, 2019 Upgraded to Aa3 (sf)Cl. B-3, Upgraded to A1 (sf); previously on Oct 30, 2019 Upgraded to A3 (sf)Cl. B-4, Upgraded to Baa1 (sf); previously on Oct 30, 2019 Upgraded to Baa3 (sf)Issuer: FLAGSTAR MORTGAGE TRUST 2017-2Cl. B-1, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa2 (sf)Cl. B-2, Upgraded to Aaa (sf); previously on Jul 19, 2019 Upgraded to A1 (sf)Cl. B-3, Upgraded to Aa3 (sf); previously on Oct 30, 2019 Upgraded to A3 (sf)Cl. B-4, Upgraded to A3 (sf); previously on Jul 19, 2019 Upgraded to Baa3 (sf)Issuer: Flagstar Mortgage Trust 2018-1Cl. A-13, Upgraded to Aaa (sf); previously on Feb 23, 2018 Definitive Rating Assigned Aa1 (sf)Cl. A-14, Upgraded to Aaa (sf); previously on Feb 23, 2018 Definitive Rating Assigned Aa1 (sf)Cl. B-1, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa2 (sf)Cl. B-2, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to A1 (sf)Cl. B-3, Upgraded to A1 (sf); previously on Oct 30, 2019 Upgraded to Baa1 (sf)Cl. B-4, Upgraded to A3 (sf); previously on Oct 30, 2019 Upgraded to Baa3 (sf)Cl. B-5, Upgraded to Ba3 (sf); previously on Nov 15, 2018 Upgraded to B1 (sf)Issuer: Flagstar Mortgage Trust 2018-2Cl. A-13, Upgraded to Aaa (sf); previously on Jul 19, 2019 Upgraded to Aa1 (sf)Cl. A-14, Upgraded to Aaa (sf); previously on Jul 19, 2019 Upgraded to Aa1 (sf)Cl. B-1, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa2 (sf)Cl. B-2, Upgraded to Aa2 (sf); previously on Oct 30, 2019 Upgraded to A1 (sf)Cl. B-3, Upgraded to A1 (sf); previously on Oct 30, 2019 Upgraded to Baa1 (sf)Cl. B-4, Upgraded to Baa1 (sf); previously on Jul 19, 2019 Upgraded to Ba1 (sf)Cl. B-5, Upgraded to Ba3 (sf); previously on Jul 19, 2019 Upgraded to B1 (sf)Issuer: Flagstar Mortgage Trust 2018-3INVCl. A-9, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa1 (sf)Cl. A-10, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa1 (sf)Cl. B-1, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to Aa1 (sf)Cl. B-2, Upgraded to Aa2 (sf); previously on Oct 30, 2019 Upgraded to Aa3 (sf)Cl. B-3, Upgraded to A1 (sf); previously on Oct 30, 2019 Upgraded to A3 (sf)Cl. B-4, Upgraded to Baa2 (sf); previously on Oct 30, 2019 Upgraded to Ba1 (sf)Issuer: Flagstar Mortgage Trust 2018-4Cl. A-10, Upgraded to Aaa (sf); previously on Jul 19, 2019 Upgraded to Aa1 (sf)Issuer: Flagstar Mortgage Trust 2018-5Cl. A-11, Upgraded to Aaa (sf); previously on Sep 20, 2018 Definitive Rating Assigned Aa1 (sf)Cl. B-1, Upgraded to Aaa (sf); previously on Jul 19, 2019 Upgraded to Aa3 (sf)Cl. B-2, Upgraded to Aaa (sf); previously on Oct 30, 2019 Upgraded to A1 (sf)Cl. B-3, Upgraded to A1 (sf); previously on Oct 30, 2019 Upgraded to Baa1 (sf)Cl. B-4, Upgraded to Baa1 (sf); previously on Jul 19, 2019 Upgraded to Ba1 (sf)Issuer: Flagstar Mortgage Trust 2019-1INVCl. B-3, Upgraded to Aa2 (sf); previously on Aug 3, 2021 Upgraded to A1 (sf)Cl. B-4, Upgraded to A3 (sf); previously on Aug 3, 2021 Upgraded to Baa2 (sf)Cl. B-5, Upgraded to Ba1 (sf); previously on Aug 3, 2021 Upgraded to Ba2 (sf)Issuer: Flagstar Mortgage Trust 2020-1INVCl. A-14, Upgraded to Aaa (sf); previously on Feb 28, 2020 Definitive Rating Assigned Aa1 (sf)Cl. A-15, Upgraded to Aaa (sf); previously on Feb 28, 2020 Definitive Rating Assigned Aa1 (sf)Cl. A-17, Upgraded to Aaa (sf); previously on Feb 28, 2020 Definitive Rating Assigned Aa1 (sf)Cl. A-18, Upgraded to Aaa (sf); previously on Feb 28, 2020 Definitive Rating Assigned Aa1 (sf)Cl. B-2, Upgraded to Aa2 (sf); previously on Jul 26, 2021 Upgraded to Aa3 (sf)Cl. B-2A, Upgraded to Aa2 (sf); previously on Jul 26, 2021 Upgraded to Aa3 (sf)Cl. B-3, Upgraded to A2 (sf); previously on Jul 26, 2021 Upgraded to A3 (sf)Cl. B-4, Upgraded to Baa2 (sf); previously on Jul 26, 2021 Upgraded to Baa3 (sf)Cl. B-5, Upgraded to Ba2 (sf); previously on Jul 26, 2021 Upgraded to Ba3 (sf)RATINGS RATIONALEToday'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 these transactions, high prepayment rates averaging 27%-55% over the last six months, driven by the low interest rate environment, 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 resulting from a slowdown in US economic activity due to the COVID-19 outbreak.For transactions where more than 4% of the loans in pool have been enrolled in payment relief programs for more than 3 months, we further increased the expected loss to account for the rising risk of potential deferral losses to the subordinate bonds. We also considered higher adjustments for transactions where more than 10% of the pool 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 pools ranged between 2-12% over the last six months.The governing documents for the impacted transactions do not prohibit the loan term on the underlying mortgages from being modified to a date beyond the transaction's Final Scheduled Distribution Date. Our analysis has accounted for the risk that some of the mortgages with term modifications will have a balance outstanding at the Final Scheduled Distribution Date.Given the pervasive financial strains tied to the pandemic, servicers have been making advances on increased amount of non-cash-flowing loans, sometimes resulting in interest shortfalls due to insufficient funds in subsequent periods when such advances are recouped. We expect such interest shortfalls to be reimbursed over the next several 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.Today's action has considered how the coronavirus pandemic has reshaped US economic environment and the way its aftershocks will continue to reverberate and influence the performance of residential mortgage loans. We expect the public health situation to improve as vaccinations against COVID-19 increase and societies continue to adapt to new protocols. Still, the exit from the pandemic will likely be bumpy and unpredictable and economic prospects will vary.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.Principal MethodologiesThe principal methodology used in these ratings was Moody's Approach to Rating US RMBS Using the MILAN Framework published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1271478. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Please note that a Request for Comment was published in which Moody's requested market feedback on potential revisions to one or more of the methodologies used in determining these Credit Ratings. If the revised methodologies are implemented as proposed, it is not currently expected that the Credit Ratings referenced in this press release will be affected. Request for Comments can be found on the rating methodologies page on www.moodys.com.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:UpLevels 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.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 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 DISCLOSURESThe 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 www.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_ARFTL461619 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 ** Disclosure to Rated Entity ** 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.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.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.At least one ESG consideration was material to the credit rating action(s) announced and described above.The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.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. Cherie Zhang Associate 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 Masako Oshima Senior Vice President 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 © 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. 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