DBRS and Morningstar Credit Ratings Confirm GSE CRT and MI-Linked Notes Asset Class Coverage

On July 11, 2019, Morningstar Credit Ratings, LLC (MCR) and DBRS, Inc (DBRS; together, DBRS Morningstar) published their first announcement regarding the integration of the analytical teams focused on the U.S. Structured Finance market. Today’s press release is the eighteenth in a series to keep the market updated on analytical integration decisions and is focused on the U.S. residential mortgage-backed securities (RMBS) sector.

<a href="https://www.dbrs.com/research/347875/" target="_blank">"DBRS and Morningstar Credit Ratings Announce Analytical Integration Process and Ratings Overlap."</a>

GOVERNMENT-SPONSORED ENTERPRISE (GSE) AND MORTGAGE INSURANCE (MI) LINKED-NOTES ASSET CLASSES
Following an analysis of the GSE CRT and MI-linked notes asset classes, DBRS Morningstar concluded that, effective on the closing date of the Request for Comment (RFC) period described herein, any new rating engagements in the GSE CRT and MI-linked notes asset classes will be rated using DBRS Morningstar’s RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (the DBRS Morningstar’s Methodology).

The RFC period is expected to close on or after December 22, 2019.

REQUEST FOR COMMENT
Today, DBRS Morningstar published a RFC on updates to its U.S. RMBS rating methodologies, including Appendix 8: Expected Mortgage Insurance Payments to the DBRS Methodology. The proposed appendix provides an analytical framework for reviewing MI-linked notes transactions. This update also includes the implementation of a minimum asset correlation in the U.S. RMBS Insight model with respect to pools with large loan counts, typically agency pools for GSE CRTs or MI-linked notes. This update is deemed to be material. DBRS Morningstar is also requesting comments on the new Exhibit II – Sample Operational Risk Questions for U.S. Mortgage Insurers to DBRS Morningstar's Operational Risk Assessment for U.S. RMBS Originators methodology.

<a href="https://www.dbrs.com/research/353169/" target="_blank">"DBRS Morningstar Requests Comments on Proposed Mortgage Insurance Appendices to RMBS Insight 1.3: U.S. RMBS Model and Rating Methodology and Operational Risk Assessment for U.S. RMBS Originators"</a>

GSE CRT AND MI-LINKED NOTES TRANSACTIONS PLACED UNDER REVIEW
As a result of the adoption of the DBRS Morningstar Methodology for GSE CRT and MI-linked notes transactions, MCR has placed all 32 outstanding transactions and 660 outstanding classes Under Review – Analytical Integration Review. The rating actions on such ratings were taken in relation to the future combination of MCR and DBRS into one single U.S. registration. Upon the closing of the RFC period, such classes of debt are expected to subsequently be assigned new DBRS Morningstar ratings. Due to the material change proposed for GSE CRT transactions, DBRS Morningstar has placed all 12 outstanding transactions and 316 outstanding classes Under Review with Positive Implications.

The credit ratings on outstanding MCR transactions in the U.S. GSE CRT asset class, which are monitored in accordance with MCR’s U.S. RMBS General Ratings Methodology, may not be of comparable credit quality as credit ratings on DBRS Morningstar transactions in this asset class monitored in accordance with DBRS Morningstar’s current RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology.

For more information related to the rating actions taken on the GSE CRT and MI-linked notes asset classes, please see the following press releases:

<a href="https://ratingagency.morningstar.com/PublicDocDisplay.aspx?i=UhDPTGjvZoc%3d&m=i0Pyc%2bx7qZZ4%2bsXnymazBA%3d%3d&s=LviRtUKXqs8kml5dHt7FTeE2SZmY0Fvqd4iX49Mk%2f9UapyiFTEO6TA%3d%3d" target="_blank">"Morningstar Credit Ratings Places Ratings on GSE CRT and MI-Linked Notes Asset Classes Under Review"</a>

<a href="https://www.dbrs.com/research/353170/" target="_blank">"DBRS Morningstar Places 12 GSE CRT Transactions Under Review with Positive Implications"</a>

For analytical inquiries regarding this press release, please contact Quincy Tang, Managing Director, U.S RMBS.

DBRS
Quincy Tang
qtang@dbrs.com
+1 212 806 3256

For rating engagement inquiries regarding the U.S. RMBS asset class coverage or any asset classes not listed, please contact Sean O’Connor, Managing Director, Head of Global Business Development.

DBRS
Sean O’Connor
soconnor@dbrs.com
+1 212 806 3252

Note: All data provided in this press release is as of November 22, 2019, and is preliminary and subject to change.

For more information on the transactions rated by DBRS Morningstar, please visit www.dbrs.com or contact DBRS at info@dbrs.com. For transactions rated by MCR, please visit www.morningstarcreditratings.com or contact ratingagency@morningstar.com.

DBRS
Stephen Bernard
sbernard@dbrs.com
+1 212 806 3240

Morningstar Credit Ratings
Vanessa Sussman
vanessa.sussman@morningstar.com
+1 646 560 4541