FEDERAL NATIONAL MORTGAGE ASSOCIATION
Fitch Ratings has assigned final ratings to
RATING ACTIONS
Entity / Debt
Rating
Prior
MSRM 2022-INV1
A-1
LT
AAAsf
New Rating
A-1-IO
LT
AAAsf
New Rating
A-2
LT
AAAsf
New Rating
A-2-IO
LT
AAAsf
New Rating
A-3
LT
AAAsf
New Rating
A-4
LT
AAAsf
New Rating
A-4-IO
LT
AAAsf
New Rating
A-5
LT
AAAsf
New Rating
A-6
LT
AAAsf
New Rating
Page
of 3
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Fitch has assigned final ratings to the residential mortgage-backed certificates issued by
This is the 10th post-crisis transaction off the
The certificates are supported by 857 prime-quality loans with a total balance of approximately
Of the loans, 10.3% qualify as either Qualified Mortgage (QM) Safe Harbor Average Prime
There is no exposure to LIBOR in this transaction. The collateral comprises 100% fixed-rate loans, and the certificates are fixed rate and capped at the net weighted average coupon (WAC), are floating- or inverse floating-rate bonds based off of the SOFR index and are capped at the net WAC or based on the net WAC.
Like other prime transactions, this transaction utilizes a senior-subordinate, shifting-interest structure with subordination floors to protect against tail risk.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated view on sustainable home prices, Fitch views the home price values of this pool as 10.6% above a long-term sustainable level (vs. 9.2% on a national level as of
Prime Credit Quality (Positive): The collateral consists of 857 loans, totaling
42.9% of the pool are nonconforming loans while the remaining 57.1% are conforming loans. The majority of the loans (89.7%) are exempt from the QM rule standards as they are loans on investor occupied homes that are for business purposes. The remaining 10.3% are able to qualify as 43-Q safe-harbor QM, QM: Temp GSE/Agency Eligible Safe Harbor, QM: Temp GSE/Agency Eligible Rebuttable Presumption or QM safe-harbor (APOR) loans. Roughly 74.2% of the pool being originated by a retail channel.
The pool consists of 100% investor properties. Single-family homes make up 75.2%, condos make up 7.7% of the pool, and multifamily homes make up 17.2% of the pool. Cash-out comprise only 23.9% of the pool while purchases comprise 54.7% and rate refinances comprise 21.4%. Based on the information provided, there are no foreign nationals in the pool.
Fifty-nine loans in the pool are over
Approximately 35% of the pool is concentrated in
Non-Owner-Occupied Loans (Negative): 100% of the loans in the pool were made to investors and 57.1% of the loans in the pool are conforming loans, which were underwritten to
The remaining 42.9% of the loans were underwritten to the underlying sellers' guidelines and were full documentation loans. All loans were underwritten to the borrower's credit risk, unlike investor cash flow loans, which are underwritten to the property's income. Fitch applies a 1.25x PD hit for agency investor loans and a 1.60x PD hit for investor loans underwritten to the borrower's credit risk.
For the loss analysis of this pool, Fitch used a customized version of the
Post-crisis performance indicates that loans underwritten to DU/LPA guidelines have relatively lower default rates compared to normal investor loans used in regression data with all other attributes controlled. The implied penalty has been reduced to approximately 25% for investor agency loans in the customized model from approximately 60% for regular investor loans in production model.
Multi-Family Loans (Negative): 17.2% of the loans in the pool are multi-family homes, which Fitch views as riskier than single-family homes, since the borrower may be relying on the rental income to pay the mortgage payment on the property. To account for this risk, Fitch adjusts the PD upwards by 25% from the baseline for multi-family homes.
Shifting Interest Structure with Full Advancing (Mixed): The mortgage cash flow and loss allocation are based on a senior-subordinate, shifting-interest structure, whereby the subordinate classes receive only scheduled principal and are locked out from receiving unscheduled principal or prepayments for five years. The lockout feature helps maintain subordination for a longer period should losses occur later in the life of the deal.
The applicable credit support percentage feature redirects subordinate principal to classes of higher seniority if specified credit enhancement (CE) levels are not maintained. Due to the leakage to the subordinate bonds the shifting interest structure requires more CE.
The servicers will provide full advancing for the life of the transaction. While this helps the liquidity of the structure, it also increases the expected loss due to unpaid servicer advances. If the servicers are not able to advance, the master servicer will provide advancing, and if the master servicer is not able to advance, the securities administrator will ultimately be responsible for advancing.
Subordination Floor (Positive): The transaction structure has senior subordination floor of 1.30%. The senior subordination floor is common in shifting interest structures in order to mitigate potential tail end risk and loss exposure for senior tranches as pool size declines and performance volatility increases due to adverse loan selection and small loan count concentration. The transaction also has a junior subordination floor of 0.90%. The junior subordination floor is present in most shifting interest structures in order to mitigate potential tail end risk and loss exposure for subordinate tranches as pool size declines and performance volatility increases due to adverse loan selection and small loan count concentration.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level. Sensitivity analyses was conducted at the state and national levels to assess the effect of higher MVDs for the subject pool as well as lower MVDs, illustrated by a gain in home prices.
This defined negative rating sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the model-projected 41.9% at '
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Fitch incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper MVDs than assumed at the MSA level. Sensitivity analyses was conducted at the state and national levels to assess the effect of higher MVDs for the subject pool as well as lower MVDs, illustrated by a gain in home prices.
This defined positive rating sensitivity analysis demonstrates how the ratings would react to positive home price growth of 10% with no assumed overvaluation. Excluding the senior class, which is already rated 'AAAsf', the analysis indicates there is potential positive rating migration for all of the rated classes. Specifically, a 10% gain in home prices would result in a full category upgrade for the rated class excluding those being assigned ratings of 'AAAsf'.
This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modeling process uses the modification of these variables to reflect asset performance in up and down environments. The results should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by
DATA ADEQUACY
Fitch relied on an independent third-party due diligence review performed on 100% of the pool. The third-party due diligence was generally consistent with Fitch's '
Fitch also utilized data files provided by the issuer on its SEC Rule 17g-5 designated website. Fitch received loan level information based on the ResiPLS data layout format, and the data are considered comprehensive. The data contained in the ResiPLS layout data tape were reviewed by the due diligence companies, and no material discrepancies were noted.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
Criteria for Rating
Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria (pub.
Global Structured Finance Rating Criteria (pub.
Structured Finance and Covered Bonds Counterparty Rating Criteria (pub.
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Third-party Model (1)
US RMBS Loan Loss Model (Excel platform), v5.10.4 (1)
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