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GCAT 2022-INV1 Trust -- Moody's assigns definitive ratings to Prime RMBS issued by GCAT 2022-INV1 Trust

·25 min read
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Rating Action: Moody's assigns definitive ratings to Prime RMBS issued by GCAT 2022-INV1 TrustGlobal Credit Research - 26 Jan 2022New York, January 26, 2022 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to 53 classes of residential mortgage-backed securities (RMBS) issued by GCAT 2022-INV1 Trust (GCAT 2022-INV1). The ratings range from Aaa (sf) to B2 (sf).GCAT 2022-INV1 is the first agency-eligible issue backed by non-owner occupied mortgage loans sponsored by Blue River Mortgage III LLC, which is owned by AG Mortgage Investment Trust.The transaction is a prime RMBS securitization of predominantly 30-year, fixed rate agency-eligible non-owner occupied mortgage loans (designated for investment purposes by the borrower), with an aggregate unpaid principal balance (UPB) of approximately $464,315,346. All the loans are underwritten in accordance with Freddie Mac or Fannie Mae guidelines, 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 government-sponsored enterprises' (GSE) automated underwriting systems (AUS) and received an "Approve" or "Accept" recommendation. As of the closing date, the sponsor or a majority-owned affiliate of the sponsor intends to retain an eligible horizontal residual interest in an amount (that is, with a fair value) equal to not less than 5% of the fair value of the certificates to satisfy U.S. risk retention rules.NewRez LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint) is the servicer and responsible for making P&I advances. Nationstar Mortgage LLC (Nationstar, long term issuer rating B2) will be the master servicer.In this transaction, the Class A-11 and Class A-11X coupon are indexed to SOFR. However, based on the transaction's structure, the particular choice of benchmark has no credit impact. First, interest payments to the notes, including the floating rate notes, are subject to the net WAC cap, which prevents the floating rate notes from incurring interest shortfalls as a result of increases in the benchmark index above the fixed rates at which the assets bear interest. Second, the shifting-interest structure pays all interest generated on the assets to the bonds and does not provide for any excess spread.The transaction has a shifting interest structure with a five-year lockout period that benefits from a senior subordination floor and a subordinate floor. We coded the cash flow to each of the certificate classes using Moody's proprietary cash flow tool.Since the provisional ratings were issued, the issuer has removed 8 loans from the collateral pool since they were no longer current on their payment status as of the cut-off date of January 1, 2022.The complete rating action are as follows.Issuer: GCAT 2022-INV1Cl. A-1, Definitive Rating Assigned Aaa (sf)Cl. A-2, Definitive Rating Assigned Aaa (sf)Cl. A-3, Definitive Rating Assigned Aaa (sf)Cl. A-4, Definitive Rating Assigned Aaa (sf)Cl. A-5, Definitive Rating Assigned Aaa (sf)Cl. A-6, Definitive Rating Assigned Aaa (sf)Cl. A-7, Definitive Rating Assigned Aaa (sf)Cl. A-8, Definitive Rating Assigned Aaa (sf)Cl. A-9, Definitive Rating Assigned Aaa (sf)Cl. A-10, Definitive Rating Assigned Aaa (sf)Cl. A-11, Definitive Rating Assigned Aaa (sf)Cl. A-11X*, Definitive Rating Assigned Aaa (sf)Cl. A-12, Definitive Rating Assigned Aaa (sf)Cl. A-13, Definitive Rating Assigned Aaa (sf)Cl. A-14, Definitive Rating Assigned Aaa (sf)Cl. A-15, Definitive Rating Assigned Aaa (sf)Cl. A-16, Definitive Rating Assigned Aaa (sf)Cl. A-17, Definitive Rating Assigned Aaa (sf)Cl. A-18, Definitive Rating Assigned Aaa (sf)Cl. A-19, Definitive Rating Assigned Aaa (sf)Cl. A-20, Definitive Rating Assigned Aaa (sf)Cl. A-21, Definitive Rating Assigned Aaa (sf)Cl. A-22, Definitive Rating Assigned Aaa (sf)Cl. A-23, Definitive Rating Assigned Aaa (sf)Cl. A-24, Definitive Rating Assigned Aaa (sf)Cl. A-25, Definitive Rating Assigned Aaa (sf)Cl. A-26, Definitive Rating Assigned Aa1 (sf)Cl. A-27, Definitive Rating Assigned Aa1 (sf)Cl. A-28, Definitive Rating Assigned Aa1 (sf)Cl. A-29, Definitive Rating Assigned Aaa (sf)Cl. A-30, Definitive Rating Assigned Aaa (sf)Cl. A-31, Definitive Rating Assigned Aaa (sf)Cl. A-X1*, Definitive Rating Assigned Aaa (sf)Cl. A-X4*, Definitive Rating Assigned Aaa (sf)Cl. A-X5*, Definitive Rating Assigned Aaa (sf)Cl. A-X6*, Definitive Rating Assigned Aaa (sf)Cl. A-X8*, Definitive Rating Assigned Aaa (sf)Cl. A-X10*, Definitive Rating Assigned Aaa (sf)Cl. A-X13*, Definitive Rating Assigned Aaa (sf)Cl. A-X15*, Definitive Rating Assigned Aaa (sf)Cl. A-X17*, Definitive Rating Assigned Aaa (sf)Cl. A-X19*, Definitive Rating Assigned Aaa (sf)Cl. A-X21*, Definitive Rating Assigned Aaa (sf)Cl. A-X25*, Definitive Rating Assigned Aaa (sf)Cl. A-X26*, Definitive Rating Assigned Aa1 (sf)Cl. A-X27*, Definitive Rating Assigned Aa1 (sf)Cl. A-X28*, Definitive Rating Assigned Aa1 (sf)Cl. A-X30*, Definitive Rating Assigned Aaa (sf)Cl. B-1, Definitive Rating Assigned Aa3 (sf)Cl. B-2, Definitive Rating Assigned A3 (sf)Cl. B-3, Definitive Rating Assigned Baa3 (sf)Cl. B-4, Definitive Rating Assigned Ba2 (sf)Cl. B-5, 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-mean is 1.08%, in a baseline scenario-median is 0.81% and reaches 6.42% at a stress level consistent with our Aaa rating scenario.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 review (TPR) and the R&W framework of the transaction.Collateral DescriptionAs of the cut-off date of January 1, 2022, the pool consists of 1,604 mortgage loans secured by first liens with an aggregate stated principal balance of approximately $464,315,346 . The loans in this transaction have strong borrower credit characteristics with a weighted average (WA) current FICO score of 768 and a WA LTV ratio of 65.3%. The mortgage pool has a WA seasoning of approximately seven months. One mortgage loan (0.03% by UPB) was previously subject to a Covid-19 related forbearance plan. In addition, if a borrower requests or enters into a forbearance plan after the Cut-off Date, such loans will remain in the pool. All mortgage loans are current as of the cut-off date. Overall, the credit quality of the mortgage loans backing this transaction is in line with recently issued GSE eligible investor property transactions we have rated, with average monthly all borrower total income of $16,634 and average liquid/cash reserve of $178,189.Approximately 5.3% of the mortgage loans by count 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. In each case, neither Fannie Mae nor Freddie Mac required an appraisal of the related mortgaged property as a condition of approving the related mortgage loan for purchase by Fannie Mae or Freddie Mac, as applicable. We made an adjustment in our analysis to account for the increased risk associated with such loans.Aggregation and Origination QualityWe consider the sponsor and the seller's aggregation platform to be adequate and we did not apply a separate loss-level adjustment for aggregation quality.Blue River Mortgage III LLC acquired approximately 55.7% of the loans (by UPB) from Bank of America, National Association (BANA). Approximately 34.6% of the loans (by UPB) were previously acquired by an affiliate of GCAT 2021-24B, LLC (Seller) prior to the closing date from BANA. Furthermore, approximately 4.7% of the loans (by UPB) were acquired directly by an affiliate of GCAT 2021-24B, LLC from Sun West Mortgage Company, Inc. and approximately 5.0% of the loans (by UPB) were acquired directly by an affiliate of GCAT 2021-24B, LLC from Arc Home, LLC.Majority of the mortgage loans in the pool were originated by NewRez LLC (21.6% by UPB), Movement Mortgage LLC (18.5% by UPB), Rocket Mortgage LLC (15.9% by UPB) and Fairway Independent Mortgage Corporation (13.4% by UPB). All other originators represent less than 10% by UPB.With exception for loans originated by Rocket Mortgage and Home Point Financial Corporation (approximately 3.2% by UPB), we did not make any adjustments to our base case and Aaa stress loss assumptions, regardless of the originator, since the loans were all underwritten in accordance with GSE guidelines.We increased our loss assumption for loans originated by Rocket Mortgage due to the relatively weaker performance of their investment property mortgage transactions compared to similar transactions from other originators. We increased our loss assumption for loans originated Home Point Financial Corporation due to (i) worse performance than average GSE investor loan despite average loans having better characteristics than GSE loans and (ii) lack of strong controls and uneven production quality (as evidenced by recent internal QC/audit findings) to support recent rapid growth.Servicing ArrangementWe consider the overall servicing framework for this pool to be adequate given the servicing arrangement of the servicer, as well as the presence of an experienced master servicer. Nationstar will act as the master servicer. Shellpoint will service all the loans in the pool.The servicer is required to advance P&I on the mortgage loans. To the extent that the servicer is unable to do so, the master servicer will be obligated to make such advances. Citibank N.A. (long-term debt Aa3), will be the Securities Administrator, Certificate Registrar and Trustee and will also act as the backup advancing party with respect to P&I advance in the event both servicer and master servicer fail in their obligation to make advances.No advances of delinquent principal or interest will be made for mortgage loans that become 120 days or more delinquent under the MBA method. Subsequently, if there are mortgage loans that are 120 days or more delinquent on any payment date, there will be a reduction in amounts available to pay principal and interest otherwise payable to note holders. We did not make an adjustment for the stop advance feature due to the strong reimbursement mechanism for liquidated mortgage loans. Proceeds from liquidated mortgage loans are included in the available distribution amount and are paid according to the waterfall.Third-Party ReviewFive third-party review (TPR) firms verified the accuracy of the loan level information that we received from the sponsor. The firms conducted detailed credit, property valuation, data accuracy and compliance reviews on 86.9% of the mortgage loans in the final collateral pool (by loan count). The TPR results indicated compliance with the originators' underwriting guidelines for most of the loans without any material compliance issues or appraisal defects. 99.6% of the loans reviewed in the final population received a grade B or higher with five loans having a final valuation of grade C due to property valuation variance being greater than -10%. We did not make adjustments to our losses as the sample size that was reviewed met our credit neutral criteria.Representations & WarrantiesWe evaluate the R&W framework based on three factors: (a) the financial strength of the R&W providers; (b) the strength of the R&Ws (including qualifiers and sunsets) and (c) the effectiveness of the enforcement mechanisms. We evaluated the impact of these factors collectively on the ratings in conjunction with the transaction's specific details and in some cases, the strengths of some of the factors can mitigate weaknesses in others. We also considered the R&W framework in conjunction with other transaction features, such as the independent due diligence, custodial receipt, and property valuations, as well as any sponsor alignment of interest, to evaluate the overall exposure to loan defects and inaccurate information. Overall, we consider the R&W framework for this transaction to be adequate, generally consistent with that of other prime transactions which we rated. However, we applied an adjustment to our losses to account for the risk that the R&W providers may be unable to repurchase defective loans in a stressed economic environment.Transaction StructureGCAT 2022-INV1 has one pool with a shifting interest structure that benefits from a subordination 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.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 balance declines, senior bonds are exposed to eroding credit enhancement over time, and increased performance volatility as a result. To mitigate this risk, the transaction provides for a senior subordination floor of 1.00% of the cut-off date pool balance, and as subordination lock-out amount of 1.00% of the cut-off date pool balance. The floors are consistent with the credit neutral floors for the assigned ratings according to our methodology.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.MethodologyThe 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 August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1271478. The methodologies used in rating interest-only classes were "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 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. 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.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_1316402.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. Siddharth Lal 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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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). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​