UWM Mortgage Trust 2021-INV5 -- Moody's assigns definitive ratings to prime RMBS issued by UWM Mortgage Trust 2021-INV5

Rating Action: Moody's assigns definitive ratings to prime RMBS issued by UWM Mortgage Trust 2021-INV5Global Credit Research - 21 Dec 2021NOTE: On December 22, 2021, the press release was corrected as follows: In the second paragraph of the REGULATORY DISCLOSURES section, the hyperlink was changed to http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1314652. Revised release follows.New York, December 21, 2021 -- Moody's Investors Service ("Moody's") has assigned definitive ratings to thirty-five classes of residential mortgage-backed securities (RMBS) issued by UWM Mortgage Trust 2021-INV5. The ratings range from Aaa (sf) to B3 (sf).UWM Mortgage Trust 2021-INV5 is a securitization of 1,531 fully-amortizing, fixed rate, first-lien non-owner occupied residential investor properties mortgage loans with original terms to maturity between 20 and 30 years, with an aggregate stated principal balance of approximately $564,038,640. All the loans in the pool are originated by United Wholesale Mortgage, LLC (UWM - Ba3 long-term corporate family and Ba3 senior unsecured bond ratings, with stable outlook) in accordance with the underwriting guidelines of Fannie Mae or Freddie Mac, subject to certain permitted variances, with additional credit overlays. The average stated principal balance is approximately $368,412 and the weighted average (WA) current mortgage rate is 3.4%.None of the mortgage loans in the pool are subject to 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.Cenlar FSB (Cenlar) will service all the mortgage loans in the pool. Servicing compensation is subject to a step-up incentive fee structure. UWM will be the servicing administrator and Nationstar Mortgage LLC (Nationstar - B2 long-term issuer rating, with positive outlook) will be the master servicer. UWM will be responsible for principal and interest advances as well as other servicing advances. The master servicer will be required to make principal and interest advances if UWM is unable to do so. If the servicing administrator and the master servicer fail in their obligations to fund any required advance, the securities administrator will be obligated to do so.Two third-party review (TPR) firms conducted credit, data accuracy, and compliance reviews on approximately 29.4% of the loans in the pool by loan count and property valuation review on 100.0% of the loans in the pool. The number of loans that went through a full due diligence review is above our credit-neutral sample size. Also, the TPR results indicate that there are no material compliance, credit, or data issues and no appraisal defects.We analyzed the underlying mortgage loans using Moody's Individual Loan Analysis (MILAN) model. Moody's expected loss for this pool in a baseline scenario-mean is 1.14% in a baseline scenario-median is 0.84% and reaches 7.09% at a stress level consistent with our Aaa ratings. We also compared the collateral pool to other securitizations with agency eligible loans. Overall, this pool has average credit risk profile as compared to that of recent transactions.The securitization 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.The complete rating actions are as follows:Issuer: UWM Mortgage Trust 2021-INV5Cl. 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-3-A, Definitive Rating Assigned Aaa (sf)Cl. A-4, Definitive Rating Assigned Aaa (sf)Cl. A-4-A, Definitive Rating Assigned Aaa (sf)Cl. A-5, Definitive Rating Assigned Aaa (sf)Cl. A-6, Definitive Rating Assigned Aaa (sf)Cl. A-6-A, 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-9-A, Definitive Rating Assigned Aaa (sf)Cl. A-9-AI*, Definitive Rating Assigned Aaa (sf)Cl. A-9-B, Definitive Rating Assigned Aaa (sf)Cl. A-9-BI*, Definitive Rating Assigned Aaa (sf)Cl. A-9-X*, Definitive Rating Assigned Aaa (sf)Cl. A-10, Definitive Rating Assigned Aaa (sf)Cl. A-11, Definitive Rating Assigned Aaa (sf)Cl. A-12, Definitive Rating Assigned Aaa (sf)Cl. A-12-A, Definitive Rating Assigned Aaa (sf)Cl. A-13, Definitive Rating Assigned Aaa (sf)Cl. A-14, Definitive Rating Assigned Aa1 (sf)Cl. A-15, Definitive Rating Assigned Aa1 (sf)Cl. A-16, Definitive Rating Assigned Aaa (sf)Cl. A-17, Definitive Rating Assigned Aaa (sf)Cl. A-X-1*, Definitive Rating Assigned Aa1 (sf)Cl. A-X-2*, Definitive Rating Assigned Aa1 (sf)Cl. A-X-3*, Definitive Rating Assigned Aaa (sf)Cl. A-X-4*, Definitive Rating Assigned Aa1 (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 Ba3 (sf)Cl. B-5, Definitive Rating Assigned B3 (sf)*Reflects Interest-Only ClassesRATINGS RATIONALESummary Credit Analysis and Rating RationaleMoody's expected loss for this pool in a baseline scenario is 1.14% at the mean, 0.84% at the median, and reaches 7.09% at a stress level consistent with our Aaa ratings.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 due diligence and the R&W framework of the transaction.Collateral descriptionThe transaction is backed by 1,531 fully-amortizing, fixed rate, first-lien non-owner occupied residential investor properties mortgage loans with original terms to maturity between 20 and 30 years, with an aggregate stated principal balance of approximately $564,038,640. The average stated principal balance is approximately $368,412 and the weighted average (WA) current mortgage rate is 3.4%. Borrowers of the mortgage loans backing this transaction have strong credit profiles demonstrated by strong credit scores and low combined loan-to-value (CLTV) ratios. The weighted average primary borrower original FICO score and original CLTV ratio of the pool is 766 and approximately 66.3% respectively. The WA original debt-to income (DTI) ratio is approximately 37.5%.Approximately 45.2% of the mortgages (by loan balance) are backed by properties located in California. The next largest geographic concentration is Arizona (approximately 6.1% by loan balance) and Florida (approximately 5.3% by loan balance). All other states each represent 5.0% or less by loan balance. Approximately 23.5% (by loan balance) of the pool is backed by properties that are two-to-four family residential properties whereas loans backed by single family residential properties represent approximately 42.2% (by loan balance) of the pool.Approximately 80.1% and 19.9% (by loan balance) of the loans were originated through the broker and the correspondent channels respectively. Irrespective of the origination channel, UWM underwrites all the loans it originates through its underwriting process. Nevertheless, the MILAN model adjusts the loan probability of default (PD) to account for different loan origination channels - retail (the least risk), broker (the most risk) and correspondent (intermediate risk) channels.Origination Quality and Underwriting GuidelinesAll the mortgage loans in this pool (including correspondent channel loans) were originated in accordance with the underwriting guidelines of Fannie Mae or Freddie Mac, subject to certain permitted variances, with additional credit overlays and approved for origination through Fannie Mae's Desktop Underwriter Program or Freddie Mac's Loan Prospector Program. Loan file reviews are conducted through a pre-funding and post-closing quality control (QC) process.We consider UWM to be an adequate originator of GSE eligible loans following our review of its underwriting guidelines, quality control processes, policies and procedures, and historical performance relative to its peers. As a result, we did not make any adjustments to our base case and Aaa stress loss assumptions.Servicing arrangementCenlar (the servicer) will service all the mortgage loans in the transaction. UWM will serve as the servicing administrator and Nationstar will serve as the master servicer. The servicing administrator will be required to (i) make advances in respect of delinquent interest and principal on the mortgage loans and (ii) make certain servicing advances with respect to the preservation, restoration, repair and protection of a mortgaged property, including delinquent tax and insurance payments, unless the servicer determines that such amounts would not be recoverable. The master servicer will be obligated to fund any required monthly advance if the servicing administrator fails in its obligation to do so. We consider the overall servicing arrangement for this pool as adequate given the ability and experience of Cenlar as a servicer and the presence of a master servicer. As a result, we did not make any adjustments to our base case and Aaa stress loss assumptions.Servicing compensation in this transaction is based on a fee-for-service incentive structure. The servicer receives higher fees for labor-intensive activities that are associated with servicing delinquent loans, including loss mitigation, than they receive for servicing a performing loan, which is less labor intensive. The fee-for-service incentive structure includes an initial monthly base servicing fee of $40 for all performing loans and increases according to certain delinquent and incentive fee schedules. The fees in this transaction are similar to other transactions with fee-for-service structure which we have rated.Third-party review (TPR)Two independent third-party review firms, Wipro Opus Risk Solutions, LLC and Consolidated Analytics, Inc., were engaged to conduct due diligence on approximately 29.4% (by loan count) of the loans in the pool for credit, compliance and data accuracy and 100.0% of the loans for property valuation review. The number of loans that went through a full due diligence review is above our calculated credit-neutral sample size. Also, there were generally no material findings. The loans that had exceptions to the originators' underwriting guidelines had significant compensating factors that were documented. We did not make any adjustments to our credit enhancement for TPR scope, sample size and results.Representations and Warranties FrameworkUWM as the sponsor, makes the loan-level R&Ws for the mortgage loans. The R&Ws cover most of the categories that we identified in our methodology as credit neutral. Further, R&W breaches are evaluated by an independent third party using a set of objective criteria. The independent reviewer will perform detailed reviews to determine whether any R&Ws were breached when any loan becomes a severely delinquent mortgage loan, a delinquent modified mortgage loan, or is liquidated at a loss. These reviews are thorough in that the transaction documents set forth detailed tests for each R&W that the independent reviewer will perform. However, we applied an adjustment to our expected losses to account for the risk that UWM may be unable to repurchase defective loans in a stressed economic environment in which a substantial portion of the loans breach the R&Ws, given that it is a non-bank entity with a monoline business (mortgage origination and servicing) that is highly correlated with the economy.Transaction structureThe securitization has a shifting interest structure that benefits from a senior subordination floor and a subordinate floor. Funds collected, including principal, are first used to make interest payments and then principal payments on a pro-rata basis up to the senior bonds principal distribution amount, and then interest and principal payments on a sequential basis up to each subordinate bond principal distribution amount. As in all transactions with shifting interest structures, the senior bonds benefit from a cash flow waterfall that allocates all prepayments to the senior bonds 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.Realized losses are allocated reverse sequentially among the subordinate and senior support certificates and on a pro-rata basis among the super senior certificates.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 shrinks, senior bonds are exposed to eroding credit enhancement over time and increased performance volatility, known as tail risk. To mitigate this risk, the transaction provides for a senior subordination floor of 1.10% which mitigates tail risk by protecting the senior bonds from eroding credit enhancement over time. Additionally, there is a subordination lock-out amount which is 1.10% of the closing pool balance.We calculate the credit neutral floors for a given target rating as shown in our principal methodology. The senior subordination floor and the subordinate floor of 1.10% and 1.10%, respectively, are consistent with the credit neutral floors for the assigned ratings.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_1314652.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. James Huh Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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