starwood mortgage residential trust 2020-3€¦ · - the credit enhancement provided for this...

Presale:

Starwood Mortgage Residential Trust 2020-3August 3, 2020

Preliminary Ratings

Class Rating(i) Amount ($)Interest rate(%)(ii)

Credit enhancement(%)(iii) Class type

A-1 AAA (sf) 368,887,000 Fixed 24.10 Senior

A-2 AA (sf) 22,356,000 Fixed 19.50 Senior

A-3 A (sf) 35,237,000 Fixed 12.25 Senior

M-1 BBB (sf) 22,356,000 Fixed 7.65 Mezzanine

B-1 BB (sf) 16,768,000 Fixed 4.20 Subordinate

B-2 B (sf) 11,178,000 Fixed 1.90 Subordinate

B-3 NR 9,235,241 Net WAC N/A Subordinate

A-IO-S NR Notional(iv) (v) N/A Excess strip

XS NR Notional(iv) (vi) N/A Excess cash flow

A-R NR N/A N/A N/A Residual

This presale report is based on information as of Aug. 3, 2020. The ratings shown are preliminary. Subsequent information may result in theassignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed as evidence offinal ratings. This report does not constitute a recommendation to buy, hold, or sell securities. (i)The collateral and structural information inthis report reflects the term sheet dated July 29, 2020. The preliminary ratings address the ultimate payment of interest and principal.(ii)Interest can be deferred on the classes. Fixed coupons are subject to the pool's net WAC rate, and the class B-3 coupon equals net WAC.(iii)This credit enhancement is solely from subordination. Excess spread also provides credit enhancement. (iv)The notional amount will equalthe aggregate stated principal balance of the mortgage loans as of the first day of the related due period. (v)Excess servicing strip minusservicing fees and compensating interest. (vi)Entitled to certain excess amounts. WAC--Weighted average coupon. N/A--Not applicable.NR--Not rated.

Profile

Expected closing date Aug. 7, 2020.

Cut-off date July 1, 2020.

Distribution date The 25th of each month, or the next business day, beginning Aug. 25, 2020.

Stated maturity date April 25, 2065.

Certificate balance,including unratedclasses

$486,017,241 in aggregate.

Presale:

Starwood Mortgage Residential Trust 2020-3August 3, 2020

PRIMARY CREDIT ANALYST

Alicia Clarke

New York

(1) 212-438-8805

[email protected]

SECONDARY CONTACTS

Terry G Osterweil

New York

(1) 212-438-2567

[email protected]

G C Torres

San Francisco

(1) 415-371-5066

[email protected]

Diane Lebowitz

New York

+ 212-438-1524

[email protected]

SURVEILLANCE CREDIT ANALYST

Truc T Bui

San Francisco

(1) 415-371-5065

[email protected]

ANALYTICAL MANAGER

Vanessa Purwin

New York

+ 1 (212) 438 0455

[email protected]

www.standardandpoors.com August 3, 2020 1

© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimeron the last page.

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mailto: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]: [email protected]

Profile (cont.)

Collateral type The aggregate pool comprises of 1,064 primarily non-qualified mortgage loans, which are fixed-and adjustable-rate residential mortgage loans (some with interest-only features) secured by firstliens on single-family residences, planned unit developments, condominiums, and two-four familyresidential properties.

Credit enhancement For each class of rated certificates, subordination in the form of certificates that are lower inpayment priority, as well as excess spread that preserves subordination.

ATR--Ability-to-repay.

Participants

Issuer Starwood Mortgage Residential Trust 2020-3.

Sponsor and servicing administrator Starwood Non-Agency Lending LLC.

Seller SMRF TRS LLC.

Depositor SMRF Depositor LLC.

Trustee Wilmington Savings Fund Society FSB.

Custodian Deutsche Bank National Trust Co.

Master servicer and securities administrator Wells Fargo Bank N.A.

Servicers AmWest Funding Corp. and Select Portfolio Servicing, Inc.

R&Ws breach reviewers Opus Capital Markets Consultants LLC and Clayton Services LLC.

Initial purchasers Credit Suisse Securities (USA) LLC.

R&Ws--Representations and warranties.

Originators Making Up More Than 10.0% Of The Collateral

Entity By balance (%) Due diligence (%) Originator ranking

AmWest Funding Corp. 66.7 100 Not ranked

LoanDepot.com LLC 14.3 100 Not ranked

Rationale

The preliminary ratings assigned to Starwood Mortgage Residential Trust 2020-3's (STAR 2020-3)mortgage pass-through certificates reflect our view of:

- The pool's collateral composition (see the Collateral Summary section below);

- The credit enhancement provided for this transaction;

- The transaction's associated structural mechanics;

- The representation and warranty (R&W) framework for this transaction;

- The geographic concentration; and

- The impact the COVID-19 pandemic will likely have on the performance of the mortgageborrowers in the pool (see "Economic Research: The U.S. Faces A Longer And Slower ClimbFrom The Bottom," published June 25, 2020) and liquidity available in the transaction.



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Presale: Starwood Mortgage Residential Trust 2020-3

S&P Global Ratings acknowledges a high degree of uncertainty about the coronavirus pandemic.The consensus among health experts is that the pandemic may now be at, or near, its peak insome regions but will remain a threat until a vaccine or effective treatment is widely available,which may not occur until the second half of 2021. We are using this assumption in assessing theeconomic and credit implications associated with the pandemic (see our research here:www.spglobal.com/ratings). As the situation evolves, we will update our assumptions andestimates accordingly.

Noteworthy Features

Acquisition process

Unlike prior STAR transactions, where the sponsor acquired the mortgage loans through theirtypical loan aggregation business, in STAR 2020-3, on the closing date, the sponsor will acquirethe loans from DLJ Mortgage Capital Inc. AmWest Funding Corp. originated 66.7% of the pool byloan balance, with the remainder of the loans originated by LoanDepot.com LLC (14.3%), RoyalBusiness Bank (6.1%), and other originators (each representing less than 5.0%).

Because AmWest Funding Corp. originated greater than 20.00% of the pool by balance, weconducted a transaction-specific mortgage operational assessment (MOA) review on AmWest. Wereviewed historical performance data on AmWest's originations, as well as performance data forsecuritizations where AmWest was either a 100% contributor (CSMC AFC deals) or a majoritycontributor (Arroyo deals). We determined that prior to COVID-19, loan performance, includingdelinquencies, losses, repurchases, early payment defaults, modifications, etc., was similar to theperformance of other non-qualified mortgage (non-QM) originators. As expected, due to COVID-19,there was a significant jump in total delinquencies in recent months. We applied a 1.05xtransaction-specific MOA adjustment factor to the loans originated by AmWest Funding Corp. Wealso determined that this adjustment factor was appropriate for the remainder of the loans in thepool.

Loans in forbearance/deferment

On March 31, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act enactedCOVID-19-related relief for borrowers with government-backed mortgage loans in the form of atemporary forbearance of up to 12 months of scheduled payments. While non-agency loans do notfall under the CARES Act as it relates to this forbearance, servicers have been grantingforbearance plans to non-agency borrowers also, typically with some variations to those of theCARES Act (e.g., timeframe, approval requirements, etc.). On April 17, 2020, we updated ourmortgage outlook and corresponding archetypal foreclosure frequency levels (see "Guidance:Methodology And Assumptions For Rating U.S. RMBS Issued 2009 And Later," published April 17,2020) to account for a portion of the borrowers entering COVID-19-related temporary forbearanceplans and their impact to the overall credit quality of collateralized pools. To the extent asecuritization pool exhibits growth levels in forbearance over time beyond those otherwiseexpected, additional adjustments may be applied.

To differentiate the credit quality of securitization pools with varying percentages of loans invarious stages of forbearance or deferment due to the outbreak of the COVID-19 at the time ofissuance, we increased loss coverage levels to account for the potential incremental risk. Givenour current expectations for temporary forbearance or deferment plans and our market outlook,we view the credit quality of a mortgagor on a forbearance or deferment plan as weaker than one



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with a current loan but potentially stronger than one with a 30-day delinquent loan that exhibitspayment issues in a normal macroeconomic environment. Our view considers the fact thatforbearance or deferment may have been utilized by some borrowers who could have otherwisemade the payment due, or the forbearance may be related to a temporary furlough or loss ofincome. The adjustment factors we apply to 30- and 60-day delinquent loans are 2.5x and 5.0x,respectively.

As of July 10, 2020, 109 mortgage loans (approximately 12.1% of the pool balance) have borrowerswho were granted forbearance of up to three months, are in review for forbearance, received aprincipal and interest (P&I) payment deferment, and/or received a loan modification due to theoutbreak of the COVID-19 pandemic. Of these 109 loans, the borrowers for 15 mortgage loans(1.4% by pool balance) opted out of their forbearance plans and either continued to make fullmonthly payments prior to opting out of the plan or repaid the forborne amounts in full and thenopted out of the plan. For these 15 loans, we applied a forbearance-related adjustment factor of1.00x-1.25x. For the remaining 94 loans (10.8% by pool balance), which are either in under reviewfor assistance, in active forbearance, received deferment, or received a modification due toCOVID-19, we applied a forbearance-related adjustment factor of 1.75x-2.50x. This resulted in anoverall adjustment factor of 1.15x at the pool level.

When deriving these factors, we considered aspects such as the seasoning of the loans andforbearance plans, payment patterns of those loans before and throughout the forbearance plan,the various stages of forbearance/deferment (see table 1), and our general expectations offorbearance/deferment from now until securitization closing.

Table 1

Forbearance/Deferment Status

Forbearance/deferment status Loan count (no.) % by balance

Never received forbearance or deferment 955 87.9

Active forbearance - no deferment 79 8.6

Active deferment – no forbearance 6 0.9

Previously in forbearance - modified 4 0.8

Under forbearance review 5 0.5

Opted out of forbearance plan - repaid missed payments in full 8 0.8

We will continue to monitor the credit behavior related to temporary forbearance as the situationevolves and more performance information becomes available, and may adjust our loss coveragelevels accordingly, which could affect the ratings. For instance, if we were to change the pool-leveladjustment related to the portion of the pool currently in forbearance to 1.35x (which is more akinto our adjustment factors for a 60-day delinquent loan) from 1.15x, ratings could, in some cases,be approximately two notches lower. We will also continue to monitor macroeconomic and housingconditions and update our mortgage market outlook and associated archetypal foreclosurefrequencies as applicable.

AmWest as servicer

In this transaction, AmWest is the servicer for the AmWest originated loans (66.7% of the pool).SPS is the servicer for the remainder of the loans in the pool. This is a change from prior STARdeals, wherein SPS was the servicer for all of the loans in the transactions.



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Clayton as R&W breach reviewer

In this transaction, Clayton Services LLC is the R&W breach reviewer for the loans where OpusCapital Markets Consultants completed the third-party due diligence (15.1% of the pool). Opus isthe R&W breach reviewer for the remainder of the loans in the pool. This is a change from priorSTAR deals, wherein Opus was the R&W breach reviewer for all of the loans in the transactions.

Sequential-pay structure

Similar to many post-COVID nonprime RMBS transactions, STAR 2020-3 has a sequential paymentstructure. Principal and interest is paid sequentially to each class, ensuring that the classesbenefit from an effective subordinate floor that is not reduced at any time.

Collateral Summary

The mortgage pool consists of 1,064 mortgage loans with a principal balance of approximately$486.01 million as of the cut-off date. The vast majority of the pool's loans have 30-year originalterms to maturity, and the pool's weighted average seasoning is approximately seven months fromthe origination date. The assets consist of fixed-rate and adjustable-rate loans, some withinterest-only features (seven or 10 years), primarily non-QM loans secured by first liens onresidential properties (the mortgage loans).

The collateral pool, from a credit perspective, is weaker than the S&P Global Ratings archetypalprime pool, but is generally in line with other nonprime residential mortgage pools. The loans inSTAR 2020-3 have relatively low original combined loan-to-value ratios (CLTVs) with a weightedaverage of 69.2% compared with other nonprime pools that we have rated. The weighted averagecurrent FICO, at 733, is also relatively strong. However, the pool is concentrated in California(73.2% of the pool), and, in particular, in the urban areas of Los Angeles (50.8%) and SanFrancisco (9.7%). To account for this geographic concentration, we applied an adjustment factorof 1.22x to our base loss coverage estimate.

The 'AAA' loss coverage requirement for the pool was determined to be 24.35%. Certaincharacteristics of the mortgage loans that we considered weaker than the archetypal pool in ouranalysis (see the Strengths and Weaknesses section) include:

- Documentation type (alternative (bank statements) income and business-purpose investorloans);

- Loan type (adjustable-rate mortgage loans and interest-only features);

- Property type (two-four family homes and condominiums);

- Occupancy status (second home or investor property);

- Loan purpose (cash-out refinances);

- Self-employed borrowers for certain loans;

- A significant number of non-QM loans;

- Nonpermanent resident aliens or foreign national borrowers for certain loans;

- Geographic concentration primarily in the Los Angeles area; and

- Loans that have been granted temporary forbearance or deferment due to the COVID-19



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pandemic.

Table 2

Collateral Characteristics

STAR2020-3

ARRW2020-1

STAR2020-1

CSMC2020-AFC1

CSMC2019-AFC1

Archetypalpool(i)

Closing pool balance (mil. $) 486.0 355.7 381.3 370.8 355.8 N/A

Closing loan count (no.) 1,064 899 605 822 739 N/A

Avg. loan balance ($) 456,783 395,684 630,213 451,110 481,526 N/A

WA original CLTV (%) 69.2 66.9 70.0 68.9 67.3 75.0

WA current CLTV (%) 68.4 65.9 69.6 68.6 66.9 75.0

WA FICO(ii) 733 742 734 736 739 725

WA current rate (%) 5.3 5.4 6.0 5.5 5.8 N/A

WA original term (mos.) 362 360 358 360 358 360

WA seasoning (mos.) 7 8 5 3 4 0-6

WA debt-to-income (%) 37.6 37.2 30.0 37.3 38.3 36.0

WA DSCR (non-zero) 1.20 1.18 N/A N/A N/A N/A

Owner occupied (%) 61.5 68.1 70.3 66.0 73.3 100.0

Single-family (including unattachedand attached PUD) (%)

80.5 81.2 83.6 88.6 87.4 100.0

Adjustable-rate loans (%) 55.8 72.9 61.4 66.4 83.5 0.0

Loans with IO payments (%) 5.9 3.1 23.5 3.0 5.5 0.0

Purchase (%) 62.0 71.2 48.8 69.0 58.5 100.0

Cash-out refinancing (%) 26.2 23.0 36.9 21.5 32.2 0.0

Full documentation (%) 42.1 58.1 11.2 48.5 38.7 100.0

Alternative/bank statementdocumentation (%)

34.5 38.2 82.0 49.0 59.6 0.0

Other/asset depletion/DSCRdocumentation (%)

23.4 3.8 6.8 2.5 1.7 0.0

Self-employed borrowers (%) 42.7 39.5 87.9 49.6 61.6 0.0

Loans with co-borrowers (%) (iii) 21.1 10.9 29.0 15.3 14.1 0.0

Loans to borrowers with multiplemortgages (%)(iv)

6.9 1.0 7.5 0.1 0.0 N/A

Loans to foreign borrowers(%)(foreign national andnon-permanent resident aliens)

7.6 5.1 0.4 7.2 11.2 0.0

Modified loans (%)(v) 0.8 0.0 0.0 0.0 0.0 0.0

PCEs (%)(v) 0.2 0.0 0.1 0.0 0.0 0.0

Current (%)(vi) 100.0 99.4 100.0 100.0 100.0 100.0

30+ day delinquent (%) 0.0 0.6 0.0 0.0 0.0

Length of P&I advancing (mos.)(vii) 6 6 6 6 6 Full

Pool-level adjustments (multiplicative factors)

Geographic concentration 1.22 1.19 1.10 1.30 1.17 1.00



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Table 2

Collateral Characteristics (cont.)

STAR2020-3

ARRW2020-1

STAR2020-1

CSMC2020-AFC1

CSMC2019-AFC1

Archetypalpool(i)

Mortgage operationalassessment

1.05 1.03 1.00 1.05 1.05 1.00

Representations and warranties 1.10 1.10 1.10 1.10 1.10 1.00

Other (i.e. loanmodification/PCE/due diligence)

1.00 1.00 1.00 1.00 1.00 1.00

Loans in forbearance/deferredpayments related to COVID-19

1.15 1.15 N/A N/A N/A

Combined pool-leveladjustments(viii)

1.62 1.55 1.21 1.50 1.35 1.00

Loss estimation(ix)

'AAA' loss coverage (%) 24.35 15.90 22.05 18.35 16.05 7.50

'AAA' foreclosure frequency (%) 45.84 32.54 43.33 35.38 33.77 15.00

'AAA' loss severity (%) 53.12 48.86 50.89 51.87 47.53 50.00

'BBB' loss coverage (%) 7.65 4.45 6.75 5.10 4.20 1.50

'BBB' foreclosure frequency (%) 24.96 17.11 22.01 17.06 16.31 5.00

'BBB' loss severity (%) 30.65 26.01 30.67 29.89 25.75 30.00

'B' loss coverage (%) 2.25 1.25 1.65 1.25 1.00 0.65

'B' foreclosure frequency (%) 10.57 7.17 7.52 5.96 5.65 3.25

'B' loss severity (%) 21.29 17.43 21.94 20.97 17.70 20.00

(i)As defined in our Feb. 22, 2018, criteria article. (ii)FICO reflects the most recent scores obtained with certain analytical assumptions.(iii)Limited to loans where certain characteristics were provided for multiple borrowers. (iv)Limited to borrowers who have multiple mortgageloans or properties included in the securitized pool. (v)Limited to modified and PCE loans considered in our analysis. (vi)Loans in forbearanceare treated as current and included in the model forbearance adjustment. (vii)Months of P&I advancing on a delinquent mortgage loan to theextent such advances are deemed recoverable. (viii)Combined pool-level adjustments are the product of each pool-level adjustment listedabove. (ix)The guidance document published April 17, 2020, reflects a revision to our 'B' (base case) projected foreclosure frequencyassumption for an archetypal loan to 3.25% from 2.50%. Loss estimates for STAR 2020-1, CSMC 2020-AFC1, and CSMC 2019-AFC1 do notreflect updated base case scenario.WA--Weighted average. CLTV--Combined loan-to-value ratio. DSCR--debt service coverage ratio.PUD--planned-unit development. IO--Interest-only. PCE--Prior credit event. P&I--Principal and interest. N/A--Not applicable.

The weighted average FICO score for the collateral pool is 733, based on certain S&P GlobalRatings assumptions. (See table 1 for a breakdown of the pool by the borrowers' FICO scores.)There are 119 loans to nonpermanent resident aliens (NPRAs) or foreign borrowers (7.61% bybalance) in this pool. In addition, out of these 119 loans, 86 loans lacked a FICO score. Weassigned a score of 697 to such borrowers with missing FICOs, which is the non-zero average FICOof the pool, minus one standard deviation. Assuming that the underlying borrower profile isrelatively homogenous, we believe this assumption appropriately addresses the risk of borrowersin this pool without FICO scores.

Table 3

Updated Credit Score Statistics

FICO score(i) Current balance (%)

800+ 4.8

775-799 19.3



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Table 3

Updated Credit Score Statistics (cont.)

FICO score(i) Current balance (%)

750-774 18.5

725-749 16.3

700-724 14.1

675-699 16.8

650-674 5.1

625-649 3.1

600-624 0.9

575-599 0.5

550-574 0.4

525-549 0.0

500–524 0.0

Chart 1

The transaction is structured as a double true sale of the underlying receivables from the seller(SMRF TRS LLC) to the depositor (SMRF Depositor LLC), and from the depositor to the issuingtrust. The issuing trust transfers the newly issued certificates to the depositor. The depositor sellsthem to the initial purchasers, who sell them to third-party investors. The depositor also sells thenon-offered certificates, as well as those required to be held to satisfy the risk-retention rules, toan affiliate of the sponsor.

In rating this transaction, S&P Global Ratings will review the legal matters that it believes arerelevant to its analysis, as outlined in its criteria.

Strengths And Weaknesses

We believe the following characteristics and features strengthen the transaction:

- The mortgage pool generally consists of loans to borrowers with strong credit scores andsignificant home equity as evidenced by the pool's weighted average FICO of 733 and weightedaverage original CLTV ratio of 69.2%.

- Third-party due diligence providers included on our published list of reviewed due diligenceproviders performed due diligence on 100% of the collateral pool. The review encompassed



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credit (underwriting) review, property valuation, regulatory compliance, and data integrity.

- Approximately 21.1% of the loans by balance have more than one borrower, which reduces therisk of default. We applied a 0.75x adjustment factor to our loss estimates for these loans.

- This transaction has a sequential payment structure. Principal and interest is paid sequentiallyto each class, ensuring that the classes benefit from an effective subordinate floor that is notreduced at any time.

- Excess monthly collections are available as credit enhancement to cover any interest shortfallsand to pay principal on the classes up to the applied realized loss amounts for the month, andthen for any cumulative realized loss amounts to date. Any remaining amounts are used toreimburse previously written-down classes sequentially to the extent the applicable principalbalance for such class of certificates has not been increased by prior applications of certificatewrite-up amounts.

We believe the following factors weaken the transaction:

- As of July 10, 2020, 109 mortgage loans, (approximately 12.1% of the pool balance) haveborrowers who were granted forbearance of up to three months, are in review for forbearance,received a P&I payment deferment, and/or received a loan modification due to the outbreak ofthe COVID-19 pandemic. We applied a forbearance-related adjustment factor of 1.15x at thepool level to account for this risk.

- Income on certain mortgage loans (34.5% by balance) was verified using "alternative" incomesources, including personal or business bank statements and third-party prepared profit andloss (P&L) statements. The majority of such loans had 12 months of income verification. Inaddition, income on 23.4% of the loans are coded as "other" documentation, such as debtservice coverage ratio (DSCR) or asset depletion. We view income verification using"alternative" and "other" documentation methods to be a weaker standard than "full"documentation of income, and, consequently, we increased our loss coverages for these loansby applying an adjustment to the foreclosure frequencies. We applied an adjustment factor of1.75x-2.25x to the foreclosure frequencies for loans using "alternative" income verification. Forthe "other" documentation loans, we applied an adjustment factor of 3.00x-6.00x to theforeclosure frequencies accordingly.

- Non-QM loans, which have an increased risk of ability-to-repay (ATR) challenges andassociated losses, make up approximately 59.2% of the pool. We applied an adjustment to lossseverities per our criteria to account for this risk.

- Approximately 42.7% of the loans in the pool were made to self-employed borrowers. Weapplied a 1.10x adjustment factor to our loss estimates for these loans, which amounted to a1.04x adjustment factor on the overall pool.

- The loans in this pool are geographically concentrated in California (73.2% of the pool balance).The top five core-based statistical areas (CBSAs) are located in the urban areas of Los Angelesand San Francisco and account for 60.5% of the aggregate pool balance. Because of thisgeographic concentration, we applied an adjustment factor of 1.22x to our base loss coverageestimate.

- The seller is providing R&Ws for this transaction that are consistent with the set ofrepresentations published in our criteria. The sponsor is providing a backstop to this obligation.However, we view the R&W framework to be weak for various reasons, including that the reviewmechanism does not require an automatic review of all loans and the seller and/or sponsor maybe unable to cure or repurchase. The third-party due diligence review on 100% of the loans



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somewhat mitigates the weaknesses of the framework. Consequently, we applied an R&Wadjustment that increased our loss expectations at all rating categories by a 1.10x factor.

Credit Analysis and Assumptions

Our analysis of the STAR 2020-3 collateral pool considered a number of factors, including certainloan-level characteristics.

Documentation type

The underlying originator's guidelines generally allow income verification using paystubs,W-2s/W-2 equivalents, tax returns, written verifications of employment documenting income,certified public accountant (CPA) or third-party prepared P&L statements, personal or businessstatements, asset depletion, investor-property rental income, or a combination thereof. Table 3shows the breakdown of the documentation types used in our analysis by balance and thecorresponding foreclosure frequency adjustment factors per our criteria.

Table 4

Documentation Type (Income Verification Type/Length)

Loancount

(no.)Current

balance (%)

Alternative incomeverification length(WA no. of months)

Foreclosurefrequency

adjustment factors(x)

'AAA' foreclosurefrequency without

pool adjustmentfactors (%)

Full documentation

Appendix Q/qualifiedmortgage

38 7.5 - 1.00 23.2

Full (24+ months) 45 7.3 - 1.00 18.4

Full (24+ months)WVOE only

279 25.9 - 1.25 19.9

Full (12-23 months) 6 0.8 - 1.25 31.2

Full (12-23 months)WVOE only

7 0.6 - 1.25 15.6

Full (1-11 months) - - - 1.50 -

Full (1-11 months)WVOE only

- - - 1.50 -

Alternative documentation

24+ months (primary source)

Business bankstatements

8 1.6 24.0 1.75 53.5

Personal bankstatements

5 0.6 24.0 1.75 30.1

Personal or businessbank statements(ii)

29 2.5 24.0 1.75 41.9

P&L statements(i) 6 0.6 24.0 1.75 57.8

Additional alternative(CPA letter/FN)

- - - 1.75 -



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Table 4

Documentation Type (Income Verification Type/Length) (cont.)

Loancount

(no.)Current

balance (%)

Alternative incomeverification length(WA no. of months)

Foreclosurefrequency

adjustment factors(x)

'AAA' foreclosurefrequency without

pool adjustmentfactors (%)

12-23 months (primary source)


31 4.2 12.0 2.00 44.8


7 0.6 12.0 2.00 41.3

Personal or businessbank statements(ii)

- - - 2.00 -

P&L statements(i) 171 20.3 12.0 2.00 41.6


- - - 2.00 -

1-11 months (primary source)


- - - 2.25 -


1 0.1 2.0 2.25 46.3

P&L statements(i) 31 4.0 8.5 2.25 20.9


- - - 2.25 -

Other documentation

Other (DSCR) 393 22.5 - 3.15-6.00 58.5

Other (applied 0.00DSCR)

- - - 6.00 -

Other (assetdepletion)

7 0.9 - 3.00 43.8

(i)The documentation source may include other secondary documentation types such as a CPA letter or supporting bank statements.(ii)Account type not provided. WVOE--Written verification of employment/employer letter. WA--Weighted average. P&L--Profit and loss.FN--Foreign National program. DSCR--Debt service coverage ratio.

QM and ATR standards

The Consumer Financial Protection Bureau issued final regulations for mortgage loans withapplications submitted on or after Jan. 10, 2014, specifying the standards for a QM (see table 5 fora QM breakout).

Table 5

QM Breakout

QM status Pool balance ($) % by pool balance

QM/Non-HPML (safe harbor) 33,193,610 6.8

QM/HPML (rebuttable presumption) 3,583,519 0.7



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Table 5

QM Breakout (cont.)

QM status Pool balance ($) % by pool balance

Non-QM/ATR compliant(i) 287,918,322 59.2

Not covered/exempt 161,321,790 33.2

Total 486,017,241 100.0

(i)Includes 45 loans originated by a Community Development Financial Institution (CDFI)—Royal Business Bank, which are not covered/exemptby nature, but were coded as non-QM/ATR compliant by the sponsor and third-party due diligence firm. QM--Qualified mortgage.HPML--Higher-priced mortgage loan. ATR--Ability to repay.

Under the ATR rule (as more fully described in our criteria--see Appendix I of "Methodology AndAssumptions For Rating U.S. RMBS Issued 2009 And Later," Feb. 22, 2018), the originator and anyassignee are jointly and severally liable for certain damages that may be incurred fromnoncompliance with the rule. For each of the loans in the pool subject to the rule, we applied ourcriteria and determined that additional credit enhancement was needed at all rating categories.

Servicer advancing obligations

Including loans in forbearance/deferment, the servicer must advance delinquent P&I on anydelinquent mortgage loan until the loan is either greater than 180 days delinquent (limited P&Iadvancing/stop-advance loan) or such P&I advance is deemed unrecoverable. In the event that theservicer fails to advance P&I on any loan that is not a stop-advance loan, including loans inforbearance/deferment, then the master servicer (Wells Fargo Bank N.A.) is responsible formaking those advances.

Unlike P&I advances, the servicer must always advance delinquent taxes and insurance (and otherproperty preservation advances) until the related property is liquidated or the servicer deems theadvance to be unrecoverable. We incorporated the limited P&I advancing into our loss severities.

Borrowers with multiple loans

We did not make any additional adjustments to the loss coverage or tail risk analysis due toborrowers with multiple loans in the pool because only 40 borrowers (6.9% of the pool balance)have multiple loans in the pool. These borrowers have two-to-five loans each. The highestexposure to any one borrower amounts to 4.2% of the pool balance.

Structural Features

Similar to many post-COVID-19 nonprime RMBS transactions, STAR 2020-3 has a sequentialpayment structure. Principal and interest is paid sequentially to each class, ensuring that theclasses benefit from an effective subordinate floor that is not reduced at any time.

The securities administrator will make monthly distributions of interest from the interestremittances and will make monthly distributions of principal from principal remittances (seetables 6, 7, and 8).



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Table 6

Interest Payment Waterfall

Priority Payment

1 Interest and interest carryforwardamounts sequentially to the class A-1,A-2, A-3, M-1, B-1, B-2, and B-3certificates.

2 Any remaining amounts paid as part ofmonthly excess cashflow.

(i)Interest carryforward amounts are deferred interest payments that accrueinterest at the lower of the respective fixed coupon and the net WAC rate. Ourpreliminary ratings address the full payment of all interest and interestcarryforward amounts by the final maturity date. WAC--Weighted averagecoupon.

Table 7

Principal Payment Waterfall

Priority Payment

1 Interest and interest carryforward amounts to the class A-1 certificates.

2 Principal to the class A-1 certificates until reduced to zero.





7 Interest and interest carryforward amounts to the class M-1 certificates.

8 Principal to the class M-1 certificates until reduced to zero.

9 Interest and interest carryforward amounts to the class B-1 certificates.

10 Principal to the class B-1 certificates until reduced to zero.





15 Any remaining amounts paid as part of monthly excess cash flows.

Table 8

Monthly Excess Cash Flow Waterfall

Priority Payment

1 In an amount up to the amount of any realized losses for such distribution date, sequentially to the classA-1, A-2, A-3, M-1, B-1, B-2, and B-3 certificates, in reduction of the class principal balance thereof, untilthe certificate amount of each class is reduced to zero.

2 In an amount up to the amount of any cumulative applied realized loss amounts, sequentially to the classA-1, A-2, A-3, M-1, B-1, B-2, and B-3 certificates, in reduction of the class principal balance thereof, untilthe certificate amount of each class is reduced to zero; and then sequentially to the class A-1, A-2, A-3,M-1, B-1, B-2, and B-3 certificates, to reimburse such classes for applied realized loss amountspreviously allocated thereto.



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Table 8

Monthly Excess Cash Flow Waterfall (cont.)

Priority Payment

3 From amounts otherwise distributable to the class XS certificates, to the cap carryover reserve account,up to the aggregate cap carryover amount for the class A-1, A-2, A-3, M-1, B-1, and B-2 certificates.

4 From amounts on deposit in the cap carryover reserve account, sequentially to the class A-1, A-2, A-3,M-1, B-1, and B-2 certificates, any unpaid cap carryover amounts thereon.

5 To the class XS certificates as distributions of excess interest as outlined in the pooling and servicingagreement.

6 To the trustee, the custodian, the securities administrator, the master servicer, the reviewers, and theservicing administrator, pro rata, any extraordinary trust expenses remaining unpaid after application ofthe annual expense cap and the applicable subcap amount.

7 To the class A-R certificates, any remaining amounts.

(i)The cap carryover amount is the positive difference between the interest that would have accrued at the fixed coupon rate (without regard tothe net WAC rate) and what was actually due based upon the net WAC rate. Any prior unpaid cap carryover amounts also accrue at the fixed rate.Our preliminary ratings do not address the payment of cap carryover amounts. WAC--Weighted average coupon.

The interest remittance amount includes interest the servicers collect from the borrowers,interest advanced, the interest portion of liquidation proceeds net of Servicers' or MasterServicers expenses, the interest portion of subsequent recoveries, and the interest portion of anyRepurchase price less aggregate expense fees (which include servicing fees adjusted to reduceany prepayment interest shortfalls, master servicing fees, trustee fees, custodial fees, reviewerfees) and non-recoverable advances, other reimbursements allowed under the servicingagreement, expenses/fees/indemnification amounts payable to transaction parties.

Principal remittance amounts include scheduled principal payments (excluding any Cut-off DateForbearance Amounts and any Cut-off Date Deferred Amounts), together with principal advances,unscheduled principal, the principal portion of liquidation proceeds net of the Servicers' or MasterServicers expenses, the principal portion of subsequent recoveries and make-whole payments,the principal portion of any Repurchase price or substitution amount, or substitution adjustmentpayments less certain fees to the extent not paid from interest collections and subject to certainannual caps certain other expenses and indemnities.

The certificate interest rate for each of the class A-1, A-2, A-3, M-1, B-1, and B-2 certificates willbe a per annum rate equal to the lesser of: (a) the fixed rate for such class of certificates and (b)the net weighted average coupon (WAC) rate. The net WAC rate is defined as the weighted averageof the mortgage interest rates of the loans net of fees, the gross servicing strip amount, andextraordinary trust expenses weighted based on the loans' principal balances. In line with ourimputed promises criteria, our preliminary ratings address the lower of these two rates (see"Principles For Rating Debt Issues Based On Imputed Promises," Dec. 19, 2014, and theassociated guidance document "Guidance: Principles For Rating Debt Issues Based On ImputedPromises," July 26, 2019).

Under the transaction documents, the issuer can defer interest payments on these certificates. Afailure to pay the interest amounts due on the certificates will result in the deferred interest(interest carryforward amounts) accruing interest at the lower of the fixed rate and the net WACrate for all classes. Our preliminary ratings on the classes address the P&I payments (includinginterest carryforward amounts) by the certificates' final maturity date.

Our preliminary ratings, however, do not address the payment of the cap carryover amounts (i.e.,the difference between the coupon and the net WAC cap where the coupon exceeds the net WAC



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cap). These amounts are subordinated in the payment priority. In our view, neither the initialcoupons on the certificates nor the initial net WAC rates are de minimis, and nonpayment of thecap carryover amounts is not considered an event of default under the transaction documents.Therefore, we do not need to consider whether these cap carryover amounts are paid in our cashflow analysis, in line with our criteria for imputed promises.

All classes are paid principal sequentially. Unlike the credit enhancement seen in shifting-interestRMBS structures, which may deplete due to scheduled and prepaid principal paid to thesubordinate classes, the credit enhancement provided by each class in a subordinate position inthis transaction does not deplete because no principal payments are made to any these classunless it is the most senior class outstanding. Although there is no specific credit enhancementfloor, because principal is paid sequentially among the classes we believe any tail riskconsiderations are accounted for.

If the aggregate class balance of the certificates exceeds the pool balance, the resulting excess(the applied realized loss amount) is applied reverse sequentially to the B-3, B-2, B-1, M-1, A-3,A-2, and A-1 certificates until each class' principal balance has been reduced to zero.

If the pool balance exceeds the aggregate class balance of the certificates (after the allocation ofprincipal payments and monthly excess cash flows to pay down the certificates), the balances ofthe certificates will be "written up" to the aggregate amount of applied realized lossessequentially to the class A-1, A-2, A-3, M-1, B-1, B-2, and B-3 certificates.

Geographic Concentration

S&P Global Ratings analyzes the pool's geographic concentration risk based on theconcentrations of loans in each of the CBSAs defined by the U.S. Office of Management andBudget (see Appendix II of "Methodology And Assumptions For Rating U.S. RMBS Issued 2009 AndLater," Feb. 22, 2018). In this transaction, the top five CBSAs are located in the urban areas of LosAngeles and San Francisco and account for 60.5% of the aggregate pool balance. Because of thisgeographic concentration, we applied a Herfindahl adjustment factor (a concentration measurebased on the sum of the squared CBSA concentrations related to a benchmark concentration) of1.22x to our base loss coverage estimate. Moreover, in our analysis, we adjust the loss severitieson loans for the level of over/under valuation in the property market by comparing the long-termaverage of the ratio of house prices to income to the current values of the same.

Table 9

Geographic Concentration

CBSA code(i) CBSA State % by balance

31084 Los Angeles-Long Beach-Glendale, CA Calif. 34.9

11244 Anaheim-Santa Ana-Irvine, CA Calif. 9.4

40140 Riverside-San Bernardino-Ontario, CA Calif. 6.5

36084 Oakland-Berkeley-Livermore, CA Calif. 4.9

41884 San Francisco-San Mateo-Redwood City, CA Calif. 4.8

Top 5 60.5

(i)CBSA code refers to the metropolitan division code, if available. CBSA--Core-based statistical area (includes metropolitan statistical areasand metropolitan divisions where defined, as well as micropolitan statistical areas).



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Large Loans And Tail Risk Considerations

As the number of loans in the transaction decreases, the effect of a single loan's losses becomesgreater. If conditional prepayment rates are slow and collateral pool losses are not realized untillater in a transaction's life (back-loaded losses), pro rata pay mechanisms can then leave thesenior notes exposed to event risk later in the transaction's life. To mitigate this risk, thetransaction documents for a pro-rata structure may provide for a credit enhancement floor,specifying principal payments not be made to subordinate classes if the credit support availableto the senior classes falls below a threshold. However, this deal utilizes a sequential pay structuretherefore each class effectively has a floor equal to all of the classes subordinate to that class.Therefore any large loan risk and tail risk is mitigated.

Mortgage Operational Assessment (MOA)

Unlike prior STAR transactions, where the sponsor acquired the mortgage loans through theirtypical loan aggregation business, in STAR 2020-3, on the closing date of this transaction, thesponsor will acquire the loans from DLJ Mortgage Capital Inc. AmWest Funding Corp. originated66.7% of the pool by loan balance, with the remainder of the loans originated by LoanDepot.comLLC (14.3%), Royal Business Bank (6.1%), and other originators (each representing less than5.0%).

Because AmWest Funding Corp. originated greater than 20.00% of the pool by balance, weconducted a transaction-specific MOA review on AmWest. We reviewed historical performancedata on AmWest's originations, as well as performance data for securitizations where AmWestwas either a 100% contributor (CSMC AFC deals) or a majority contributor (Arroyo deals). Wedetermined that prior to COVID-19, loan performance, including delinquencies, losses,repurchases, early payment defaults, modifications, etc., was similar to the performance of othernon-QM originators. As expected, due to COVID-19, there was a significant jump in totaldelinquencies in recent months. We applied a 1.05x transaction-specific MOA adjustment factorto the loans originated by AmWest Funding Corp. We also determined that this adjustment factorwas appropriate for the remainder of the loans in the pool (32.3% by balance).

Third-Party Due Diligence Review

The third-party due diligence providers--AMC Diligence LLC, Clayton Services LLC, Digital Risk,Selene New Diligence Advisors, and Opus Capital Markets Consultants LLC, which are all on ourlist of reviewed providers--performed due diligence on 100% of the pool's loans. Their reviewsencompassed credit (underwriting) compliance, property valuations, regulatory compliance, anddata quality. For loans that were underwritten to a DSCR, AMC Diligence LLC did not review theloan for regulatory compliance. Some loans fell within the scope of the TILA-Real EstateSettlement Procedures Act (RESPA) Integrated Disclosure rule (TRID). For these loans, thethird-party firms followed the SFIG RMBS 3.0 TRID Compliance Review Scope in conducting theirfinal loan reviews (see "Standard & Poor's Comfortable With SFIG Draft Proposal Regarding TRIDDue Diligence," published April 25, 2016). According to our published third-party due diligencecriteria, we adjust our loss expectations based on our view of the firms' findings (see Appendix IIIof "Methodology And Assumptions For Rating U.S. RMBS Issued 2009 And Later," published Feb.22, 2018). After reviewing the third-party due diligence results, we applied a neutral adjustment of1.00x to the loss coverage.



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R&Ws

Our review of the R&Ws focused on whether the representations made by an originator or theseller were substantially consistent with the set of representations we published as part of ourcriteria (see Appendix IV of "Methodology And Assumptions For Rating U.S. RMBS Issued 2009 AndLater," published Feb. 22, 2018). Our review of the R&W framework accounts for automatic reviewtriggers, knowledge qualifiers, gap periods, sunset provisions, and enforcement mechanisms. Weevaluated the strength of the R&W framework and considered whether any breach could have amaterially adverse impact on the interests of the transaction's certificateholders. If the R&Ws andthe framework do not address the components in our published R&W framework, we determinewhether it is appropriate to assess additional credit enhancement. Lastly, we considered the R&Wprovider's ability to fulfill its obligations in the event of a breach.

On the closing date, the sponsor will acquire the mortgage loans in this transaction from DLJMortgage Capital Inc. (DLJ). The sponsor will then sell the loans to the seller, who will make theR&Ws to the trust via applicable deal documents. The seller has made the R&Ws either as of theorigination date of the loan or as of the date the loans are sold to the issuing trust, whichever isapplicable. The seller's performance of its obligations regarding these R&Ws will be guaranteed bythe sponsor.

While the R&W framework is consistent with other R&W frameworks utilized in comparable ratednonprime transactions, we consider it to be weak because the controlling holder is not required totest for loans that are severely delinquent or suffer a realized loss (other than any loans showinglosses in which the borrowers assert an ATR defense), though it has the option to do so. However,if a loan is judicially determined to have a TRID finding, or if the custodian determines a loan hasdefective or missing documentation, it must be cured or repurchased. Another positive feature ofthis transaction is that it allows a review of a stop-advance mortgage loan (a severely delinquentloan on which the servicer has stopped advancing P&I).

The R&Ws are generally consistent with our published criteria for U.S. RMBS issued 2009 andlater, and they will remain in effect for the transaction's life. However, given that the statute oflimitations under New York law for R&W claims is generally six years from the date arepresentation is made, there is effectively an expiration date on the R&Ws. In addition, while theEPD covenant is generally consistent with that in other rated nonprime transactions, it is weakerthan what is described as the standard in our criteria.

Because the R&W provider may have limited repurchasing ability, we applied a 1.10x loss coverageadjustment to compensate for the risk associated with the financial capacities of the R&Wprovider and the overall R&W framework. We believe this adjustment is appropriate in the contextof the due diligence performed on the loans and the collateral's credit quality.

Attributes of the R&W framework

Knowledge qualifiers: The transaction has a knowledge qualifier that relates to therepresentation that the property is in compliance with environmental laws. Overall, this oneknowledge qualifier does not appear to be material to the R&W framework.

Sunset: The R&Ws do not contain sunset provisions.



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Review triggers: Review triggers occur if a loan incurs a realized loss or is a severely delinquentloan, only if the controlling holder directs the reviewer to test for R&W breaches--except loans forwhich the borrowers assert an ATR defense. Loans with realized losses for which borrowers assertan ATR defense are automatically reviewed. A review on a loan with realized losses can also betriggered with the approval of at least 25% of the certificateholders (the "directingcertificateholders"). In addition, if a loan is judicially determined to have a TRID finding andstatutory damages exceed $400, or if the custodian determines a loan has defective or missingdocumentation, it may be cured by repurchasing, substitution, or by making a make-wholepayment (negotiated between the R&W enforcer and the representing party) to the trust. Overall,we believe these review triggers are weaker compared to those typically seen in prime-jumboRMBS transactions, but they are in line with, or slightly better than, the ones stipulated in non-QMRMBS transactions.

The breach reviewer: In this transaction, Clayton Services LLC is the independent R&W breachreviewer for the loans where Opus Capital Markets Consultants completed the third-party duediligence (15.1% of the pool). Opus is the independent R&W breach reviewer for the remainder ofthe loans in the pool. The reviewers will have sole authority to determine whether a breach hasoccurred. Having an independent breach reviewer is a positive feature of the R&W framework, inour view.

Breach effectiveness: To determine whether a breach warrants a repurchase obligation, theapplicable breach reviewer must follow the prescribed guidelines detailed in the offeringmaterials. One feature concerns a materiality test failure in which the breach reviewer mustdetermine whether the defect materially increased the loan's credit risk at origination; resulted in,or will result in, a higher loss at liquidation; or impaired the payment or loan's enforceability. Thereviewer must consider disclosure of any defects, exceptions, compensating factors, and whetherthe mortgage loan exception was in compliance with the underwriting guidelines to determinemateriality.

The breach tests are prescribed, which has pros and cons. Although it reduces the process'uncertainty to the representation providers and investors, the specific procedures and thresholdsmay limit the scope of the breach reviewer and could prevent certain loans from being put back.

Enforcement party: Generally, the controlling holder will be the R&W enforcement party. Whilethe risk-retention requirements are still applicable, the risk-retention holder (initially, an affiliateof the sponsor) will be the controlling holder. However, if the seller's affiliate is the controllingholder and is the breaching party, the trustee, at the request of directing certificateholders, will bethe R&W enforcement party. After the expiration of the risk-retention requirements, the majorityowner of the junior-most subordinate (or mezzanine) tranche will typically be the controllingholder. Due to the strategic business alliances between the initial controlling holder and therepresenting party, there is potential for conflicts of interest to arise between thecertificateholders and the controlling holder related to calling for an R&W breach review, as wellas for enforcing the R&W breach cures. Stipulating approval from directing certificateholdersbefore a trustee can act as a controlling holder weakens the framework too, because it createsadditional steps that would be needed to address enforcement.

Enforcement mechanisms: Enforcing the breach reviewer's decision is not automatic after amaterial test failure is communicated via initial review determination and the sponsor and trusteereceive breach determination reports. Generally, within 30 days of receiving the breachdetermination report, the R&W enforcement party has to produce an enforcement initiation report



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and commence enforcement. Failure to do so will preclude any further enforcement action. Thebreach cure period is 60 days from receiving the enforcement initiation report, during which therepresenting party can provide additional information or documentation. The reviewer has another30 days to re-perform all tests and produce a final review determination report. If the representingparty provides no additional information, the initial review determination report serves as the finalreview determination report. If additional information is provided, but a final review determinationreport is not delivered, a test failure will be deemed to not have occurred. While these permissibletimeframes could benefit the trust by potentially reducing the time it takes to put back a loan, itcould also be a detriment because certain technicalities related to missing strict timeframescould result in not enforcing material breaches. Similarly, while requiring directingcertificateholders approval for enforcement expenses in excess of the annual enforcement capamount may give certificateholders a choice of whether to pursue enforcement and thus reducecosts, it may also delay enforcement. If the representation provider disputes the final reviewdetermination, it may choose arbitration proceedings.

Arbitration: Dispute resolutions are subject to arbitration proceedings. Only the R&Wenforcement party or the representing party may seek arbitration; the certificateholders are notpermitted to participate in the arbitration proceedings. For successful repurchase claims,reasonably incurred costs and expenses related to the breach enforcement framework will beincorporated into the repurchase price. For unsuccessful repurchase claims, reasonably incurredcosts and expenses will be borne to the trust in the form of extraordinary trust expenses subject tothe annual cap. The decision of the arbitrator will be final and binding.

Cash Flow And Scenario Analysis

We reviewed the transaction structure and performed a cash flow analysis to simulate variousrating stress scenarios (see table 10) to determine the ratings for each class consistent with ourcriteria, accounting for the available credit enhancement. We analyzed various scenarios for eachrating category/level, including combinations of:

- Front- and back-loaded default timing curves;

- Two-year recovery lag assumptions;

- Fast and slow prepayment assumptions;

- High, low, and forward interest rate curve assumptions; and

- Delinquency assumptions to stress liquidity for potential forbearance.

Table 10

Cash Flow Assumptions

Scenario

AAA AA A BBB BB B

Recovery lag (mos.) 24 24 24 24 24 24

Prepayments (%)(i)

Low CPR 1 2 3 4 5 6

High CPR 20 20 20 20 20 20

Servicer stop advance (%) N/A N/A N/A N/A N/A N/A



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Table 10

Cash Flow Assumptions (cont.)

Scenario

AAA AA A BBB BB B

Scenario 1: delinquency curve, standard delinquency curve for testing triggers without cash flow stress

Scenario 2: delinquency curve; delinquencies at 35% for first the six months to stress liquidity and triggers, followed bystandard delinquency curve to test triggers

Foreclosure frequency (%) 45.84 40.30 32.54 24.96 17.68 10.57

Loss severity (%) 53.12 47.52 36.88 30.65 25.74 21.29

Loss coverage (%) 24.35 19.15 12.00 7.65 4.55 2.25

(i)Using a standard prepayment convention. CPR--Conditional prepayment rate. N/A--Not applicable.

Notwithstanding the use of excess interest as credit enhancement in the transaction structure,we applied our usual front- and back-loaded rather than bulleted (e.g., semiannual or annuallump sum) default timing curves in our analysis. This reflects our view of the potential volatility ofcash flows given the newly originated loans are subject to third-party due diligence and includestructural considerations, such as sequential principal allocations among all classes and partialP&I advancing by the servicer.

We applied the foreclosure frequencies, loss severities, and combinations of the stresses notedabove in our cash flow runs, and observed some periodic missed interest due to the liquidity stressassociated with no advancing. To pass our applicable rating-specific stresses, the interestdeferrals (or interest carryforward amounts) resulting from any missed interest payments on thecertificates have to be paid in full by the maturity date. All deferred interest was paid back withinterest under the applicable rating-specific stresses in our cash flow projections. The resultsshow that each rated class in the transaction is enhanced to a degree consistent with theassigned preliminary ratings.

Table 11

Structural Assessment

Class RatingInitial class

size (%)Initial credit

enhancement (%)Loss coverage

(%)Percentage point difference between credit

enhancement and loss coverage

A-1 AAA (sf) 75.90 24.10 24.35 (0.25)

A-2 AA (sf) 4.60 19.50 19.15 0.35

A-3 A (sf) 7.25 12.25 12.00 0.25

M-1 BBB(sf)

4.60 7.65 7.65 0.00

B-1 BB (sf) 3.45 4.20 4.55 (0.35)

B-2 B (sf) 2.30 1.90 2.25 (0.35)

B-3 NR 1.90 0.00 0.00 0.00

NR--Not rated.

WAC deterioration stress



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The transaction structure allows excess spread to provide some of the credit enhancement. Weapplied a WAC deterioration stress that steps up linearly from zero basis points (bps) to 59 bpsover 10 years and remains at that level thereon, to address the potential for the pool's WAC todecline as higher coupon loans prepay or default and thus stress the excess spread.

Interest stresses

In this transaction, extraordinary trust expense payments reduce the net WAC rate, whicheffectively allocates the extraordinary trust expenses pro rata across all senior and subordinatecertificateholders by reducing their interest payments by the amount of the extraordinary trustexpenses paid (subject to the annual cap). Although the extraordinary trust expenses are passedthrough as reduced contractual interest due to certificateholders, we ran these expenses at theircapped amounts, to test any impact on the securities due to the dependence on excess spread asa form of credit enhancement to the securities and the presence of certain structural featuressuch as limited P&I advancing, and because interest payments on the securities are deferrable.

Imputed Promises Analysis

Based on our criteria, "Principles For Rating Debt Issues Based On Imputed Promises," publishedDec. 19, 2014, and the associated guidance "Guidance: Principles For Rating Debt Issues BasedOn Imputed Promises," published July 26, 2019, we impute the interest owed to thesecurityholders when rating U.S. RMBS transactions where credit-related events can reduceinterest owed to the tranches across the capital structure rather than an allocation of suchcredit-related loss to the available credit support. WAC deterioration that occurs because ofdefaults, repurchases, or prepayments is not considered credit related, and, therefore, it is notconsidered as part of this analysis.

Because this transaction provides for credit-related loan modifications and extraordinary trustexpenses to reduce the net WAC, at which the transaction's bond coupons are capped, we appliedthe approach outlined in the criteria to assess the maximum potential rating (MPR) that couldapply based on our projected interest reduction amount (PIRA). As this is a new-issue transaction,we did not account for any cumulative interest reduction amount.

Consistent with our criteria, we assumed that 50% of the loans projected to default would bemodified, which, when added to the extraordinary trust expenses, resulted in a maximum PIRA onthe rated certificates that is significantly below the 4.5% threshold. We stressed extraordinarytrust expenses by the relevant extraordinary expense application factor for four years, betweenpayment periods 13 and 60. Based on the results of our analysis, there was no impact to the MPRon the certificates.

Historically, we have observed that extraordinary trust expenses have been minimal when they dooccur and have been extremely limited in pre-2009 RMBS transactions. We continue to expecttheir actual occurrence in post-2009 transactions to be rare.

Operational Risk Assessment

Our criteria "Global Framework For Assessing Operational Risk In Structured FinanceTransactions," published Oct. 9, 2014, present our methodology and assumptions for assessingcertain operational risks (severity, portability, and disruption risks) associated with asset typesand key transaction parties (KTPs) that provide an essential service to a structured finance issuer.



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According to the criteria, we cap the ratings on a transaction if we believe operational risk couldlead to credit instability and affect the ratings.

As provided in the operational risk criteria, for severity risk and portability risk, there are threepossible rankings: high, moderate, or low. For disruption risk, there are four possible rankings:very high, high, moderate, or low. The rankings for each of the three types of risks determine theMPR that can be assigned to a structured finance security for a given KTP before givingconsideration to any provisions for a backup KTP, such as a master servicer.

According to our criteria, we rank severity and portability risk for nonprime residential mortgagecollateral as moderate and low, respectively. For STAR 2020-3, the master servicer, Wells FargoBank N.A. is the KTP. We consider the disruption risk for this master servicer as low. Given theserisk assessments, our criteria does not cap the ratings on the transaction.

Related Criteria

- Criteria | Structured Finance | General: Methodology To Derive Stressed Interest Rates InStructured Finance, Oct. 18, 2019

- Criteria | Structured Finance | Legal: U.S. Structured Finance Asset Isolation AndSpecial-Purpose Entity Criteria, May 15, 2019

- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating StructuredFinance Securities: Methodology And Assumptions, Jan. 30, 2019

- Criteria | Structured Finance | RMBS: Assumptions Supplement For Methodology AndAssumptions For Rating U.S. RMBS Issued 2009 And Later, Feb. 22, 2018

- Criteria | Structured Finance | RMBS: U.S. Residential Mortgage Operational AssessmentRanking Criteria, Feb. 22, 2018

- Criteria | Structured Finance | RMBS: Methodology And Assumptions For Rating U.S. RMBSIssued 2009 And Later, Feb. 22, 2018

- General Criteria: Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017

- Criteria | Structured Finance | General: Structured Finance Temporary Interest ShortfallMethodology, Dec. 15, 2015

- General Criteria: Principles For Rating Debt Issues Based On Imputed Promises, Dec. 19, 2014

- Criteria | Structured Finance | General: Global Framework For Cash Flow Analysis Of StructuredFinance Securities, Oct. 9, 2014

- Criteria | Structured Finance | General: Criteria Methodology Applied To Fees, Expenses, AndIndemnifications, July 12, 2012

- General Criteria: Global Investment Criteria For Temporary Investments In TransactionAccounts, May 31, 2012

- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28,2009



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Related Research

- Servicer Evaluation: Select Portfolio Servicing Inc., July 23, 2020

- Select Servicer List, July 2, 2020

- Economic Research: The U.S. Faces A Longer And Slower Climb From The Bottom, June 25,2020

- U.S. Residential Mortgage Input File Format For LEVELS, March 6, 2020

- S&P Global Ratings Is Assessing The Impact Of COVID-19 On Mortgage Market Outlooks ForGlobal RMBS, April 17, 2020

- Economic Research: An Already Historic U.S. Downturn Now Looks Even Worse, April 16, 2020

- Servicer Evaluation: Wells Fargo Bank N.A., Oct. 10, 2019

- S&P Global Ratings Definitions, Sept. 18, 2019

- Credit Rating Model: LEVELS Model For U.S. Residential Mortgage Loans, Aug. 6, 2019

- S&P Global Ratings Publishes List Of Third-Party Due Diligence Firms Reviewed For U.S. RMBSAs Of Aug. 5, 2019, Aug. 5, 2019

- Key Factors For Assessing U.S. Non-Qualified Mortgage Bank Statement Loans, April 10, 2019

- Credit Rating Model: Intex RMBS Cash Flow Model, April 7, 2017

- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top FiveMacroeconomic Factors, Dec. 16, 2016

- Standard & Poor's Comfortable With SFIG Draft Proposal Regarding TRID Due Diligence, April25, 2016

- Older RMBS Transactions Face Increased Tail Risk As Their Pools Shrink, Aug. 9, 2012

In addition to the criteria specific to this type of security (listed above), the following criteriaarticles, which are generally applicable to all ratings, may have affected this rating action:"Counterparty Risk Framework: Methodology And Assumptions," March 8, 2019; "Post-DefaultRatings Methodology: When Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23,2015; "Global Framework For Assessing Operational Risk In Structured Finance Transactions,"Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace Periods, Guarantees, And Use of 'D'And 'SD' Ratings," Oct. 24, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings,"Oct. 1, 2012; "Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch AndOutlooks," Sept. 14, 2009.



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Standard & Poor’s | Research | August 3, 2020 252489507


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