Fitch Expects to Rate Goldman Sach's GSMBS Trust 2018-RPL1; Issues Presale.
--$1,001,443,000 class A1A1 certificates 'AAAsf'; Outlook Stable;
--$111,272,000 class A1A2 certificates 'AAAsf'; Outlook Stable;
--$1,112,715,000 class A1A exchangeable certificates 'AAAsf'; Outlook Stable;
--$123,636,000 class A1B certificates 'AAAsf'; Outlook Stable;
--$1,236,351,000 class A1 exchangeable certificates 'AAAsf'; Outlook Stable.
Fitch will not be rating the following classes:
--$81,582,000 class A2 certificates;
--$82,033,000 class A3 certificates;
--$96,456,000 class M1 certificates;
--$72,117,000 class M2 certificates;
--$70,313,000 class B1 certificates;
--$54,088,000 class B2 certificates;
--$54,989,000 class B3 certificates;
--$27,945,000 class B4 certificates;
--$27,044,000 class B5 certificates.
The issuer will also be retaining an uncertificated amount equal to 5% of the transaction, which is also not rated.
--$94,891,031 class RiskRetention.
Fitch expects to rate the residential mortgage-backed class A1 notes to be issued by GS Mortgage-Backed Securities Trust 2018-RPL1 (GSMBS 2018-RPL1) as indicated above. The notes are supported by one collateral group that consists of 8,138 seasoned and reperforming mortgages with a total balance of approximately $1.898 billion, which includes $373.9 million, or 19.7%, of the aggregate pool balance in non-interest-bearing deferred principal amounts, as of the cut-off date. Distributions of principal and interest (P&I) and loss allocations are based on a traditional senior subordinate, sequential-pay structure.
The sequential-pay structure locks out principal to the subordinated notes until the most senior notes outstanding are paid in full. The servicer will not be advancing delinquent P&I payments.
KEY RATING DRIVERS
High Amount of Principal Forbearance (Negative): The pool has a material percentage of principal forbearance (19.7%) compared to other recent Fitch-rated transactions. For Fitch's analysis, the deferred amount is included in the loan-to-value (LTV) ratio that resulted in a higher than average LTV when compared to recently rated deals. Additionally, the high amount of non-interest-bearing deferrals is accounted for during the cash flow analysis through higher initial credit enhancement to reflect that a portion of loan principal collections will be used to pay bond interest payments, resulting in subordinate bond principal writedowns in stress scenarios.
Clean Current Loans (Positive): Although 99.3% of the pool has been modified, the majority (87.9%) has been paying on time for the past 24 months. Borrowers that have been current for at least the past 36 months (79.1%) received a 35% reduction to Fitch's 'AAAsf' probability of default (PD) while those that have been current between 24 months and 36 months received a 26.25% reduction.
Uncapped Bond Coupon (Neutral): The class A1 bonds pay a fixed-rate coupon that is higher than the adjusted net weighted average coupon (WAC) of the pool. This is a key difference between this structure and other recent Fitch-rated RPL transactions in which the senior bond typically pays the lower of a fixed rate and the adjusted net WAC. By fixing the coupon at a rate higher than the pool's net WAC, more underlying principal collections are required to pay class A1 interest. The additional initial credit enhancement (CE) required to compensate for principal redirection to principal contributed to the material difference between Fitch's expected pool loss (24.75%) and class A1 CE (31.43%).
Sequential-Pay Structure (Positive): The transaction's cash flow is based on a sequential-pay structure, whereby the subordinate classes do not receive principal until the senior classes are repaid in full. Losses are allocated in reverse-sequential order. Furthermore, the provision to re-allocate principal to pay interest on the 'AAAsf' rated notes prior to other principal distributions is highly supportive of timely interest payments to those classes in the absence of servicer advancing.
No Servicer P&I Advances (Mixed): The servicer will not be advancing delinquent monthly payments of P&I, which reduces liquidity to the trust. However, as P&I advances made on behalf of loans that become delinquent and eventually liquidate reduce liquidation proceeds to the trust, the loan-level loss severities (LS) are less for this transaction than for those where the servicer is obligated to advance P&I. Structural provisions and cash flow priorities, together with increased subordination, provide for timely payments of interest to the 'AAAsf' rated classes.
Representation Framework (Negative): Fitch considers the representation, warranty and enforcement (RW&E) mechanism construct for this transaction to generally be consistent with what it views as a Tier 2 framework, due to the inclusion of knowledge qualifiers and the exclusion of loans from certain reps as a result of third-party due diligence findings. Fitch increased its 'AAAsf' expected loss expectations by roughly 150 bps to account for a potential increase in defaults arising from weaknesses in the reps.
Limited Life of Rep Provider (Negative): The sponsor, Goldman Sachs Mortgage Company (GSMC) as rep provider, will only be obligated to repurchase a loan due to breaches prior to the payment date in December 2019. Thereafter, a reserve fund will be available to cover amounts due to noteholders for loans identified as having rep breaches. Amounts on deposit in the reserve fund, as well as the increased level of subordination, will be available to cover additional defaults and losses resulting from rep weaknesses or breaches occurring on or after the rep provider sunset date.
Low Operational Risk (Positive): Operational risk is well controlled in this transaction. Goldman Sachs has an experienced RMBS history and an 'acceptable' aggregator assessment from Fitch. Projected losses were reduced by 5% due to the quality of the servicer, Select Portfolio Servicing, LLC (SPS), who is rated 'RPS1-' by Fitch. The loans in the securitization pool are seasoned over 10 years on average and the results of third-party due diligence provider identified exceptions typical for loans of similar collateral and age; however, the findings had minimal impact on the final overall pool. While the Tier 2 representation and warranty framework receives a penalty in Fitch's loss model the framework should help protect against excessive defaults and losses from loan defects and the issuer's retention of at least 5% of the bonds helps ensure an alignment of interest between issuer and investor.
Fitch analyzed the transaction in accordance with its criteria, as described in its report, "U.S. RMBS Rating Criteria." This incorporates a review of the originators' lending platforms or aggregator's acquisition process, as well as an assessment of the transaction's R&Ws provided by the originators and arranger, which were found to be consistent with the ratings assigned to the certificates.
Fitch's analysis incorporates sensitivity analyses to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at both the metropolitan statistical area (MSA) and national levels. The implied rating sensitivities are only an indication of some of the potential outcomes and do not consider other risk factors that the transaction may become exposed to or be considered in the surveillance of the transaction.
Fitch conducted sensitivity analysis determining how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10%, 20%, and 30%, in addition to the model-projected 7% at the base case. The analysis indicates there is some potential rating migration with higher MVDs, compared with the model projection.
Fitch also conducted sensitivities to determine the stresses to MVDs that would reduce a rating by one full category, to non-investment-grade, and to 'CCCsf'.
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 AMC Diligence, LLC (AMC) which was engaged to perform a regulatory compliance, tax and title and data integrity third-party due diligence review on the loans. The third-party due diligence described in Form 15E focused on: regulatory compliance review and 24-month pay-history review.
The results of the reviews indicated that 357 loans or 4.4% of the loans subject to due diligence were graded 'D,' which is lower than the industry average for Fitch reviewed transactions. The majority of the 'D' grade exceptions were due to missing documentation that did not prevent successful testing for predatory lending, and the exceptions did not carry assignee liability. Fitch did not make any loss adjustments for these findings. However, adjustments were applied to 129 loans for which predatory lending compliance could not be tested with confidence. These adjustments are common for RPL transactions and increased expected losses by less than 25bps.
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 accessing the appendix referenced under Related Research below. 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,' dated May 31, 2016.
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Jan 16, 2019|
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