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Rating Action: Moody's assigns provisional ratings to mortgage insurance credit risk transfer notes issued by Triangle Re 2021-2 Ltd.Global Credit Research - 01 Apr 2021New York, April 01, 2021 -- Moody's Investors Service, ("Moody's") has assigned provisional ratings to four classes of mortgage insurance credit risk transfer notes issued by Triangle Re 2021-2 Ltd.Triangle Re 2021-2 Ltd. is the fourth transaction issued under the Triangle Re program, which transfers to the capital markets the credit risk of private mortgage insurance (MI) policies issued by Genworth Mortgage Insurance (Genworth, the ceding insurer) on a portfolio of residential mortgage loans. The notes are exposed to the risk of claims payments on the MI policies, and depending on the notes' priority, may incur principal and interest losses when the ceding insurer makes claims payments on the MI policies.On the closing date, Triangle Re 2021-2 Ltd. (the issuer) and the ceding insurer will enter into a reinsurance agreement providing excess of loss reinsurance on mortgage insurance policies issued by the ceding insurer on a portfolio of residential mortgage loans. Proceeds from the sale of the notes will be deposited into the reinsurance trust account for the benefit of the ceding insurer and as security for the issuer's obligations to the ceding insurer under the reinsurance agreement. The funds in the reinsurance trust account will also be available to pay noteholders, following the termination of the trust and payment of amounts due to the ceding insurer. Funds in the reinsurance trust account will be used to purchase eligible investments and will be subject to the terms of the reinsurance trust agreement.Following the instruction of the ceding insurer, the trustee will liquidate assets in the reinsurance trust account to (1) make principal payments to the notes as the insurance coverage in the reference pool reduces due to loan amortization or policy termination, and (2) reimburse the ceding insurer whenever it pays MI claims after the Class B-2 coverage level is written off. While income earned on eligible investments is used to pay interest on the notes, the ceding insurer is responsible for covering any difference between the investment income and interest accrued on the notes' coverage levels.The complete rating actions are as follows:Issuer: Triangle Re 2021-2 Ltd.Cl. M-1A, Assigned (P)Baa2 (sf)Cl. M-1B, Assigned (P)Baa3 (sf)Cl. M-1C, Assigned (P)Ba2 (sf)Cl. M-2, Assigned (P)B2 (sf)RATINGS RATIONALESummary Credit Analysis and Rating RationaleWe expect this insured pool's aggregate exposed principal balance to incur 2.23% losses in a base case scenario-mean, and 18.43% losses under a Aaa stress scenario. The aggregate exposed principal balance is the product, for all the mortgage loans covered by MI policies, of the unpaid principal balance of each mortgage loan and the MI coverage percentage.The coronavirus pandemic has had a significant impact on economic activity. Although global economies have shown a remarkable degree of resilience to date and are returning to growth, the uneven effects on individual businesses, sectors and regions will continue throughout 2021 and will endure as a challenge to the world's economies well beyond the end of the year. While persistent virus fears remain the main risk for a recovery in demand, the economy will recover faster if vaccines and further fiscal and monetary policy responses bring forward a normalization of activity. As a result, there is a heightened degree of uncertainty around our forecasts. Our analysis has considered the effect on the performance of consumer assets from a gradual and unbalanced recovery in U.S. economic activity.We increased our model-derived median expected losses by 7.5% (approximately 6.6% for the mean) and our Aaa loss by 2.5% to reflect the likely performance deterioration resulting from the slowdown in US economic activity due to the coronavirus outbreak. These adjustments are lower than the 15% median expected loss and 5% Aaa loss adjustments we made on pools from deals issued after the onset of the pandemic until February 2021. Our reduced adjustments reflect the fact that the loan pool in this deal does not contain any loans to borrowers who are not currently making payments. For newly originated loans, post-COVID underwriting takes into account the impact of the pandemic on a borrower's ability to repay the mortgage. For seasoned loans, as time passes, the likelihood that borrowers who have continued to make payments throughout the pandemic will now become non-cash flowing due to COVID-19 continues to decline.We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.In addition, we considered that for this transaction, similar to other mortgage insurance credit risk transfer deals, payment deferrals are not claimable events and thus are not treated as losses; rather they would only result in a loss if the borrower ultimately defaults after receiving the payment deferral and a mortgage insurance claim is filed.We calculated losses on the pool using our US Moody's Individual Loan Analysis (MILAN) model based on the loan-level collateral information as of the cut-off date. Loan-level adjustments to the model results included, but were not limited to, adjustments for origination quality.Collateral DescriptionEach mortgage loan has an insurance coverage effective date on or after September 1, 2020, but on or before December 31, 2020. The reference pool consists of 125,389 prime, fixed- and adjustable-rate, one- to four-unit, first-lien fully-amortizing, predominantly conforming mortgage loans with a total insured loan balance of approximately $35 billion. Most of the loans in the reference pool had a loan-to-value (LTV) ratio at origination that was greater than 80%, with a weighted average of 91.3%. The borrowers in the pool have a weighted average FICO score of 743, a weighted average debt-to-income ratio of 36.4% and a weighted average mortgage rate of 3.0%.The weighted average LTV of 91.3% is far higher than those of recent private label prime jumbo deals, which typically have LTVs in the high 60's range, however, it is in line with those of recent MI CRT and STACR high-LTV transactions. Most of these insured loans in the reference pool were originated with LTV ratios greater than 80%. 100% of insured loans were covered by mortgage insurance at origination with 97.7% covered by BPMI and 2.3% covered by LPMI based on unpaid principal balance.Underwriting QualityWe took into account the quality of Genworth's insurance underwriting, risk management and claims payment process in our analysisLenders submit mortgage loans to Genworth for insurance either through delegated underwriting or non-delegated underwriting program. Under the delegated underwriting program, lenders can submit loans for insurance without Genworth re-underwriting the loan file. Genworth issues an MI commitment based on the lender's representation that the loan meets the insurer's underwriting requirement. Genworth does not allow exceptions for loans approved through its delegated underwriting program. Lenders eligible under this program must be pre-approved by Genworth. Under the non-delegated underwriting program, insurance coverage is approved after full-file underwriting by the insurer's underwriters. For Genworth's overall portfolio, approximately 66% of the loans by unpaid principal balance are insured through delegated underwriting and 34% through non-delegated.Genworth generally aligns with the GSE underwriting guidelines via DU/LP. Genworth restricts its coverage to mortgage loans that meet or exceed its thresholds with respect to borrower Credit Scores, maximum DTI levels, maximum loan-to-value levels and documentation requirements. Genworth's underwriting guidelines also seek to limit the coverage it provides for certain higher-risk mortgage loans, including those for cash-out refinancings, second homes or investment properties, although certain Mortgage Loans covered by the Reinsurance Agreement will contain such higher-risk characteristics. Servicers file a claim within 60 days of taking title or sale of the property. Claims are submitted by uploading or entering on Genworth's website, electronic transfer or paper. Claims documentation include: F/C chronology, servicing notes, invoices, BPOs, closing docs, and modification agreement. All claims are validated and audited by Genworth. Within 90 days after the claim settlement, a supplemental claim may be filed for trailing advances not included on the initial claim for loss. Claims not perfected within 120 days of receipt will be denied.Genworth performs an internal quality assurance review on a sample basis of delegated and non-delegated underwritten loans to ensure that (i) the reported risk exposure of insured mortgage loans is accurately represented; (ii) lenders are submitting loans under delegated authority are adhering to contractual requirements and (iii) internal underwriters are following guidelines and maintaining consistent underwriting standards and processes.Genworth has a solid quality control process to ensure claims are paid timely and accurately. Similar to the above procedure, Genworth's claims management reviews a sample of paid claims each month. Findings are used for performance management as well as identified trends. In addition, there is strong oversight and review from internal and external parties such as GSE audits, Department of Insurance audits, audits from an independent account firm, and Genworth's internal audits and compliance. Genworth is also SOX compliant.Third-Party ReviewGenworth engaged Opus CMC. to perform a data analysis and diligence review of a sampling of mortgage loans files submitted for mortgage insurance. This review included validation of credit qualifications, verification of the presence of material documentation as applicable to the mortgage insurance application, updated valuation analysis and comparison, and a tape-to-file data integrity validation to identify possible data discrepancies. The scope does not include a compliance review.The scope of the third-party review is weaker than most other MI CRT transactions we rated because the sample size was small (only 325 of the total loans in the initial reference pool). Once the sample size was determined, the files were selected randomly to meet the final sample count of 325 files out of a total of 125,389 loan files. Out of the 325 mortgage loans included within the diligence sample, two mortgage loans experienced a Coverage Termination and one mortgage loan went into forbearance (as reported to the Ceding Insurer) during the period from January 1, 2021 to the Cut-off Date of February 28, 2021 (both days inclusive) and, consequently, were removed from the pool of mortgage loans to be reinsured under the Reinsurance Agreement.In spite of the small sample size and a limited TPR scope for Triangle Re 2021-2 Ltd., we did not make an additional adjustment to the loss levels because, (1) approximately 34% of the loans in the reference pool were submitted through non-delegated underwriting, which have gone through full re-underwriting by the ceding insurer, (2) the underwriting quality of the insured loans is monitored under the GSEs' stringent quality control system, and (3) MI policies will not cover any costs related to compliance violations.Scope and results. The third-party due diligence scope focuses on the following:Appraisals: The third-party diligence provider also reviewed property valuation on 100% of the loans in the sample pool.Credit: The third-party diligence provider reviewed credit on 100% of the loans in the sample pool. The third-party diligence provider reviewed each mortgage loan file to determine the adherence to stated underwriting or credit extension guidelines, standards, criteria or other requirements provided by Genworth.Data integrity: The third-party review firm was provided a data file with loan level data, which was audited against origination documents to determine the accuracy of data found within the data tape.Reps & Warranties FrameworkThe ceding insurer does not make any representations and warranties to the noteholders in this transaction. Since the insured mortgages are predominantly GSE loans, the individual sellers would provide exhaustive representations and warranties to the GSEs that are negotiated and actively monitored. In addition, the ceding insurer may rescind the MI policy for certain material misrepresentation and fraud in the origination of a loan, which would benefit the MI CRT noteholders.Transaction StructureThe transaction structure is very similar to other MI CRT transactions. The ceding insurer will retain the senior coverage level A and the B-2 coverage level at closing. The offered notes benefit from a sequential pay structure. The transaction incorporates structural features such as a 12.5-year bullet maturity and a sequential pay structure for the non-senior tranches, resulting in a shorter expected weighted average life on the offered notes.Funds raised through the issuance of the notes are deposited into a reinsurance trust account and are distributed either to the noteholders, when insured loans amortize or MI policies terminate, or to the ceding insurer for reimbursement of claims paid when loans default. Interest on the notes is paid from income earned on the eligible investments and the coverage premium from the ceding insurer. Interest on the notes will accrue based on the outstanding balance of the notes, but the ceding insurer will only be obligated to remit coverage premium based on each note's coverage level.Credit enhancement in this transaction is comprised of subordination provided by mezzanine and junior tranches. The rated Class M-1A, Class M-1B, Class M-1C, Class M-2 and Class B-1 offered notes have credit enhancement levels of 6.25%, 4.80%, 3.75%, 2.50% and 2.25%, respectively. The credit risk exposure of the notes depends on the actual MI losses incurred by the insured pool. MI losses are allocated in a reverse sequential order starting with the coverage level B-2. Investment deficiency amount losses are allocated in a reverse sequential order starting with the class B-1 notes.So long as the senior coverage level is outstanding, and no performance trigger event occurs, the transaction structure allocates principal payments on a pro-rata basis between the senior and non-senior reference tranches. Principal is then allocated sequentially amongst the non-senior tranches. Principal payments are all allocated to senior reference tranches when trigger event occurs.A trigger event with respect to any payment date will be in effect if the coverage level amount of coverage level A for such payment date has not been reduced to zero and either (i) the preceding three month average of the sixty-plus delinquency amount for that payment date equals or exceeds 75.00% of Class A subordination amount or (ii) the subordinate percentage (or with respect to the first payment date, the original subordinate percentage) for that payment date is less than the target CE percentage (minimum C/E test: 8.25%).Premium Deposit Account (PDA)The premium deposit account will benefit the transaction upon a mandatory termination event (e.g. the ceding insurer fails to pay the coverage premium and does not cure, triggering a default under the reinsurance agreement), by providing interest liquidity to the noteholders, when combined with the income earned on the eligible investments, of approximately 70 days while the reinsurance trust account and eligible investments are being liquidated to repay the principal of the notes.On the closing date, the ceding insurer will establish a cash and securities account (the PDA), and the deposit amount will be made to the account by the ceding insurance because the premium deposit event is triggered. The premium deposit event will be triggered (1) with respect to any class of notes, if the rating of that class of notes exceeds the insurance financial strength (IFS) rating of the ceding insurer or (2) with respect to all classes of notes, if the ceding insurer's IFS rating falls below Baa3. If the note ratings exceed that of the ceding insurer, the insurer will be obligated to deposit into and maintain in the premium deposit account the required PDA amount (see next paragraph) only for the notes that exceeded the ceding insurer's rating. If the ceding insurer's rating falls below Baa3, it will be obligated to deposit the required PDA amount for all classes of notes.The required PDA amount for each class of notes and each month is equal to the excess, if any, of (i) the coupon rate of the note multiplied by (a) the applicable funded percentage, (b) the coverage level amount for the coverage level corresponding to such class of notes and (c) a fraction equal to 70/360, over (ii) two times the investment income collected (but not yet distributed) on the eligible investments.We believe the requirement that the PDA be funded only upon a rating trigger event does not establish a linkage between the ratings of the notes and the IFS rating of the ceding insurer because, 1) the required PDA amount is small relative to the entire deal, 2) the risk of PDA not being funded could theoretically occur only if the ceding insurer suddenly defaults, causing a rating downgrade from investment grade to default in a very short period, which is a highly unlikely scenario, and 3) even if the insurer becomes insolvent, there would be a strong incentive for the insurer's insolvency regulator to continue to make the interest payments to avoid losing reinsurance protection provided by the deal.Claims ConsultantTo mitigate risks associated with the ceding insurer's control of the trust account and discretion to unilaterally determine the MI claims amounts (i.e. ultimate net losses), the ceding insurer will engage Opus Capital Markets Consultants LLC, as claims consultant, to verify MI claims and reimbursement amounts withdrawn from the reinsurance trust account once the coverage level B-2 has been written down. The claims consultant will review on a quarterly basis a sample of claims paid by the ceding insurer covered by the reinsurance agreement. In verifying the amount, the claims consultant will apply a permitted variance to the total paid loss for each MI Policy of +/- 2%. The claims consultant will provide a preliminary report to the ceding insurer containing results of the verification. If there are findings that cannot be resolved between the ceding insurer and the claims consultant, the claims consultant will increase the sample size. A final report will be delivered by the claims consultant to the trustee, the issuer and the ceding insurer. The issuer will be required to provide a copy of the final report to the noteholders and the rating agencies.Unlike RMBS transactions where there is typically some level of independent third party oversight by the trustee, the master servicer and/or the securities administrator, MI CRT transactions typically do not have such oversight. As noted, the ceding insurer not only has full control of the trust account but can also determine, at its discretion, the MI claims amount. The ceding insurer will then direct the trustee to withdraw the funds to reimburse for the claims paid. Since the trustee is not required to verify the MI claims amount, there could be a scenario where funds are withdrawn from the reinsurance trust account in excess of the amounts necessary to reimburse the ceding insurer. As such, we believe the claims consultant in this transaction will provide the oversight to mitigate such risks.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 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.MethodologyThe principal methodology used in these ratings was "Moody's Approach to Rating US RMBS Using the MILAN Framework" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1201303. Alternatively, please see the Rating Methodologies page on www.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.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.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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.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. Philip Rukosuev Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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