Moody's assigns provisional ratings to Prime RMBS issued by GS Mortgage-Backed Securities Trust 2022-GR1

Rating Action: Moody's assigns provisional ratings to Prime RMBS issued by GS Mortgage-Backed Securities Trust 2022-GR1Global Credit Research - 12 Jan 2022New York, January 12, 2022 -- Moody's Investors Service ("Moody's") has assigned provisional ratings to 30 classes of residential mortgage-backed securities (RMBS) issued by GS Mortgage-Backed Securities Trust (GSMBS) 2022-GR1. The ratings range from(P)Aaa (sf) to (P)B3 (sf).GS Mortgage-Backed Securities Trust 2022-GR1 (GSMBS 2022-GR1) is the first investment property transaction in 2022 issued by Goldman Sachs Mortgage Company (GSMC), the sponsor and the mortgage loan seller. GSMC is a wholly owned subsidiary of Goldman Sachs Bank USA and Goldman Sachs. The certificates are backed by 1,788 first lien, primarily 30-year, fully-amortizing fixed-rate mortgage loans on residential investment properties with an aggregate unpaid principal balance (UPB) of $519,290,576 as of the January 1, 2022 cut-off date. All loans in the pool are originated by Guaranteed Rate parties. Overall, pool strengths include the high credit quality of the underlying borrowers, indicated by high FICO scores, strong reserves, loans with fixed interest rates and no interest-only loans. As of the cut-off date, all of the mortgage loans are current, and no borrower has entered into a COVID-19 related forbearance plan with the servicer.Approximately 1.8% of the mortgage loans by stated principal balance as of the cut-off date were subject to debt consolidation in which the related funds were used by the related mortgagor for consumer, family or household purposes (personal-use loans). Vast majority of the personal-use loans are "qualified mortgages" under Regulation Z as result of the temporary provision allowing qualified mortgage status for loans eligible for purchase, guaranty, or insurance by Fannie Mae and Freddie Mac (and certain other federal agencies). With the exception of personal-use loans, all other mortgage loans in the pool are not subject to the federal Truth-in-Lending Act (TILA) because each such mortgage loan is an extension of credit primarily for a business purpose and is not a "covered transaction" as defined in Section 1026.43(b)(1) of Regulation Z. As of the closing date, the sponsor or a majority- owned affiliate of the sponsor will retain at least 5% of the initial certificate principal balance or notional amount of each class of certificates (other than Class A-R certificates) issued by the trust to satisfy U.S. risk retention rules.NewRez LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint) will service all of the loans in the pool. Computershare Trust Company, N.A. will be the master servicer and securities administrator. U.S. Bank Trust National Association will be the trustee. Pentalpha Surveillance LLC will be the representations and warranties (R&W) breach reviewer.One third-party review (TPR) firm verified the accuracy of the loan level information. This firm conducted detailed credit, property valuation, data accuracy and compliance reviews on 27.0% (by loan count) of the mortgage loans in the collateral pool.We analyzed the underlying mortgage loans using Moody's Individual Loan Analysis (MILAN) model. In addition, we adjusted our losses based on qualitative attributes, including origination quality, the strength of the R&W framework and third-party review (TPR) results.Distributions of principal and interest and loss allocations are based on a typical shifting interest structure with a five-year lockout period that benefits from a senior and subordination floor. We coded the cash flow to each of the certificate classes using Moody's proprietary cash flow tool.The complete rating actions are as follows:Issuer: GS Mortgage-Backed Securities Trust 2022-GR1 Cl. A-1, Assigned (P)Aaa (sf) Cl. A-2, Assigned (P)Aaa (sf) Cl. A-3, Assigned (P)Aa1 (sf) Cl. A-4, Assigned (P)Aa1 (sf) Cl. A-5, Assigned (P)Aaa (sf) Cl. A-6, Assigned (P)Aaa (sf) Cl. A-7, Assigned (P)Aaa (sf) Cl. A-8, Assigned (P)Aaa (sf) Cl. A-9, Assigned (P)Aaa (sf) Cl. A-9-X*, Assigned (P)Aaa (sf)Cl. A-10, Assigned (P)Aaa (sf)Cl. A-11, Assigned (P)Aaa (sf)Cl. A-11-X*, Assigned (P)Aaa (sf)Cl. A-12, Assigned (P)Aaa (sf)Cl. A-12-X*, Assigned (P)Aaa (sf)Cl. A-13, Assigned (P)Aaa (sf)Cl. A-14, Assigned (P)Aaa (sf)Cl. A-15, Assigned (P)Aa1 (sf)Cl. A-X-1*, Assigned (P)Aa1 (sf)Cl. A-X-2*, Assigned (P)Aaa (sf)Cl. A-X-3*, Assigned (P)Aa1 (sf)Cl. A-X-4*, Assigned (P)Aa1 (sf)Cl. A-X-5*, Assigned (P)Aaa (sf)Cl. A-X-6*, Assigned (P)Aa1 (sf)Cl. A-X-7*, Assigned (P)Aaa (sf)Cl. B-1, Assigned (P)Aa3 (sf)Cl. B-2, Assigned (P)A3 (sf)Cl. B-3, Assigned (P)Baa3 (sf)Cl. B-4, Assigned (P)Ba3 (sf)Cl. B-5, Assigned (P)B3 (sf)*Reflects Interest-Only ClassesRATINGS RATIONALESummary Credit Analysis and Rating RationaleMoody's expected loss for this pool in a baseline scenario-mean is 0.95%, in a baseline scenario-median is 0.70%, and reaches 5.65% at stress level consistent with our Aaa rating.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, strength of the TPR and the R&W framework of the transaction.Collateral DescriptionWe assessed the collateral pool as of January 1, 2022, the cut-off date. The aggregate collateral pool as of the cut-off date consists of 1,788 first lien, primarily 30-year, fully-amortizing fixed-rate mortgage loans on residential investment properties with an aggregate unpaid principal balance (UPB) of $519,290,576 and a weighted average mortgage rate of 3.5%.All the mortgage loans are secured by first liens on one-to-four family residential properties, planned unit developments and condominiums. 1,707 mortgage loans have original terms to maturity of 30 years, six loans have original term to maturity of 25 years, 75 loans have original term to maturity of 20 years.The WA current FICO score of the borrowers in the pool is 772. The WA Original LTV ratio of the mortgage pool is 65.7%, which is in line with that of comparable transactions.The mortgage loans in the pool were originated mostly in California (30.9% by loan balance) and in high cost metropolitan statistical areas (MSAs) of Los Angeles (10.9%), Boston (10.5%), Chicago (7.4%), San Francisco (6.4%) and others (16.4%). The average loan balance of the pool is $290,431. We made adjustments in our analysis to account for this geographic concentration risk. Top 10 MSAs comprise 51.6% of the pool, by loan balance. Approximately 19.6%% of the pool balance is related to borrowers with two or more mortgages in the pool.Aggregator/Origination QualityGSMC is the loan aggregator and the mortgage seller for the transaction. GSMC's general partner is Goldman Sachs Real Estate Funding Corp. and its limited partner is Goldman Sachs Bank USA. Goldman Sachs Real Estate Funding Corp. is a wholly owned subsidiary of Goldman Sachs Bank USA. GSMC is an affiliate of Goldman Sachs & Co. LLC. GSMC is overseen by the mortgage capital markets group within Goldman Sachs. Senior management averages 16 years of mortgage experience and 15 years of Goldman Sachs tenure. The mortgage loans for this transaction were acquired by GSMC, the sponsor and the mortgage loan seller from Guaranteed Rate, Inc and Guaranteed Rate Affinity, LLC. The mortgage loan seller does not originate any mortgage loans, including the mortgage loans included in the mortgage pool. Instead, the mortgage loan seller acquired the mortgage loans pursuant to contracts with the originators.Overall, we consider GSMC's aggregation platform to be comparable to that of peer aggregators and therefore did not apply a separate loss-level adjustment for aggregation quality.Servicing ArrangementWe consider the overall servicing arrangement for this pool to be adequate, and as a result we did not make any adjustments to our base case and Aaa stress loss assumptions based on the servicing arrangement.Shellpoint will be the named primary servicer for this transaction and will service 100% of the pool. Shellpoint is an approved servicer in good standing with Ginnie Mae, Fannie Mae and Freddie Mac. Shellpoint's primary servicing location is in Greenville, South Carolina. Shellpoint services residential mortgage assets for investors that include banks, financial services companies, GSEs and government agencies. Computershare Trust Company, N.A. (Computershare) will act as master servicer and securities administrator under the sale and servicing agreement and as custodian under the custodial agreement. Computershare is a national banking association and a wholly-owned subsidiary of Computershare Ltd (Baa2, long term rating), an Australian financial services company with over $5 billion (USD) in assets as of June 30, 2021. Computershare Ltd and its affiliates have been engaging in financial service activities, including stock transfer related services since 1997, and corporate trust related services since 2000.Third-party ReviewEvolve Mortgage Services (Evolve), the TPR firm, reviewed 27.0%(by loan count) of the loans for regulatory compliance, credit, property valuation and data accuracy. The due diligence results confirm compliance with the originators' underwriting guidelines for many mortgage loans, no material compliance issues, and no material valuation defects. The mortgage loans that had exceptions to the originators' underwriting guidelines had significant compensating factors that were documented.Representations & WarrantiesGSMBS 2022-GR1's R&W framework is in line with that of prior GSMBS transactions we have rated where an independent reviewer is named at closing, and costs and manner of review are clearly outlined at issuance. Our review of the R&W framework takes into account the financial strength of the R&W providers, scope of R&Ws (including qualifiers and sunsets) and the R&W enforcement mechanism. The loan-level R&Ws meet or exceed the baseline set of credit-neutral R&Ws we have identified for US RMBS. R&W breaches are evaluated by an independent third-party using a set of objective criteria. The transaction requires mandatory independent reviews of mortgage loans that become 120 days delinquent and those that liquidate at a loss to determine if any of the R&Ws are breached. There is a provision for binding arbitration in the event of a dispute between the trust and the R&W provider concerning R&W breaches.The creditworthiness of the R&W providers determines the probability that the R&W provider will be available and have the financial strength to repurchase defective loans upon identifying a breach. An investment-grade rated R&W provider lends substantial strength to its R&Ws. We analyze the impact of less creditworthy R&W providers case by case, in conjunction with other aspects of the transaction. Here, because the R&W providers are unrated and/or exhibit limited financial flexibility, we applied an adjustment to the mortgage loans for which these entities provided R&Ws.Tail Risk and Locked Out PercentageThe 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 0.85% of the cut-off date pool balance, and a subordination lock-out amount of 0.85% 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_1316105.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. Dipanshu Rustagi Vice President - Senior Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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