NEW YORK–(BUSINESS WIRE)–Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to three classes of mortgage pass-through certificates from Starwood Mortgage Residential Trust 2020-2 (STAR 2020-2), a $583.5 million non-prime residential mortgage-backed securities (RMBS) transaction.
STAR 2020-2 is the first KBRA-rated RMBS transaction with a significant percentage of loans (38.9% by balance) in active forbearance plans due to the COVID-19 crisis at the time of the analysis, with approximately 27% of the loans having missed the most recent loan payment due. KBRA made a number of adjustments to its expected losses and cash flow modeling scenarios, including assumptions for an increase in forbearance and delinquency in the short term, increased default risk for forbearance loans notwithstanding current payment status, reductions in credit to excess spread, and front-loaded home price decline timing projections.
STAR 2020-2 is sponsored by Starwood Non-Agency Lending, LLC, a division of Starwood Capital Group (SCG). The STAR 2020-2 pool, comprising 890 mortgages, includes loans underwritten using alternative documentation sources such as 12-month bank statements (46.8%), 24-month bank statements (28.3%) and asset qualification (7.8%), as well as borrowers with prior credit events (6.0%). Additionally, STAR 2020-2 contains a smaller subset of loans (17.1%), with more traditional full documentation, which KBRA generally considers to be expanded prime due to certain loan or borrower characteristics, such as loans that would typically require exceptions to prime/super-prime guidelines with compensating factors. Of the loans subject to the Ability-to-Repay (ATR) rule, all are classified as non-QM (80.0%), and the rest are exempt from the ATR rule (20.0%) as the loans were originated for investment properties.
The underlying STAR 2020-2 collateral consists of both fixed rate mortgages (FRMs, 36.5%) and hybrid adjustable rate mortgages (ARMs, 63.5%), most of which have 30-year terms (99.0%). The hybrid ARMs have initial fixed rate periods of five (55.5%), seven (6.8%) or 10 (1.1%) years. Approximately 24.5% of the loans have interest-only periods, ranging from five to 10 years. Loans in the pool exhibit substantial borrower equity, as evidenced by the WA original LTV of 72.5% and CLTV of 72.5%. The pool has a WA original credit score of 730, and a WA loan age of nine months.
KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its Residential Mortgage Default and Loss Model, an examination of the results from third-party loan file due diligence, cash flow modeling, analysis of the transaction’s payment structure, reviews of key transaction parties, and an assessment of the transaction’s legal structure and documentation. This analysis is further described in our U.S. RMBS Rating Methodology.
- STAR 2020-2 Pre-Sale Report
- STAR 2020-2 Tear Sheet
- U.S. RMBS Rating Methodology
- Residential Mortgage Default and Loss Model
- U.S. RMBS Rating Methodology for Assessing Non-QM Risk
- Global Structured Finance Counterparty Methodology
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.
Sharif Mahdavian, Managing Director (Lead Analyst)
+1 (646) 731-2301
Jay Wang, Director
+1 (646) 731-1220
Jack Kahan, Senior Managing Director (Rating Committee Chair)
+1 (646) 731-2486
Business Development Contact
Michele Patterson, Managing Director
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