DBRS Finalizes Provisional Ratings on Impact Funding Affordable Multifamily Housing Mortgage Loan Trust 2014-1

DBRS, Inc. (DBRS) has today finalized the provisional ratings on the following classes of Affordable Multifamily Mortgage Loan Pass-Through Certificates, Series 2014-1 (the Certificates) issued by Impact Funding Affordable Multifamily Housing Mortgage Loan Trust 2014-1. The trends are Stable.

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class A-3 at AAA (sf)
-- Class X-A at AAA (sf)
-- Class X-FX1 at AAA (sf)
-- Class X-B at AAA (sf)
-- Class X-FX2 at AAA (sf)
-- Class B at AA (low) (sf)
-- Class C at A (low) (sf)
-- Class D at BBB (low) (sf)
-- Class E at BB (sf)
-- Class F at B (sf)

Classes A-1, A-2, A-3, X-A and X-FX1 represent the Certificates that have been purchased and guaranteed by Freddie Mac and will be deposited into the SPC Trust to back the Offered SPCs.

Classes B, C, D, E, F, X-B and X-FX2 represent the non-guaranteed offered certificates.

All classes have been privately placed.

The Class X balances are notional. DBRS ratings on interest-only (IO) Certificates address the likelihood of receiving interest based on the notional amount outstanding. DBRS considers the IO Certificates’ position within the transaction payment waterfall when determining the appropriate rating.

The collateral consists of 124 fixed-rate loans secured by 118 multifamily properties, for a total transaction balance of $215,216,599. The DBRS sample included 33 loans, representing 44.9% of the pool. The loans benefit from strong origination practices through the Impact platform, with Freddie Mac guaranteeing the AAA Classes and the tax credit investor having a vested interest in the continued performance of the properties. Within this Impact platform, there have been three rated securitizations since 2000 that together have an extremely low delinquency rate of only 0.04% as of June 2014. This compares very favorably with the delinquency rate for CMBS multifamily loans of approximately 4.74% for the same period. In addition, cash flow underwriting is prudent, as evidenced by an average DBRS net cash flow variance of -5.1% on the sampled loans.

The pool is concentrated by property type, with affordable multifamily properties representing 100% of the collateral; however, it is also very granular, based on loan size. The pool has a concentration profile of 82 equal-sized loans helping to insulate the higher-rated classes from event risk. Additionally, the leverage level is quite low, as evidenced by the strong DBRS Going-In and Exit Debt Yields of 11.4% and 16.7%, respectively. While the average remaining loan term for the pool is long at 208 months, 13% of the pool fully amortizes over the loan term and the overall pool amortizes by 42.5% over the loan term. This is further evidenced by the strong weighted-average DBRS Term and Refi DSCR of 1.41x and 1.99x.

Since issuing the Provisional Rating, DBRS has concluded its legal review including finalizing a review of a sample of the Subordination Agreements associated with the subordinate debt on a portion of the loans. Some of the Subordination Agreements were found to be non-standard and therefore DBRS increased the probability of default for the corresponding loans. The results did not ultimately impact the final ratings.

Classes A-1, A-2, A-3, X-A and X-FX1 are being purchased by Freddie Mac and conveyed into separate trust funds. Freddie Mac will offer structured pass-through certificates (SPCs) that represent pass-through interests in Classes A-1, A-2, A-3, X-A and X-FX1. With respect to the SPCs, Freddie Mac guarantees: (1) timely payment of interest; (2) payment of related principal on the distribution date following the maturity date of each mortgage loan, to the extent such principal would have been distributed to the underlying Class A-1, Class A-2 and Class A-3 certificates; (3) reimbursement of any realized losses and additional trust fund expenses allocated to the Underlying Guaranteed Certificates; and (4) ultimate payment of principal by the assumed final distribution date for the underlying Class A-1, Class A-2 and Class A-3 certificates. Please see the press release titled “DBRS Assigns Provisional Ratings on Freddie Mac Structured Pass-Through Certificates, Series Q-001,” dated October 30, 2014, for further information on the SPCs.

The ratings assigned to the Certificates by DBRS are based exclusively on the credit provided by the transaction structure and underlying trust assets without regard to the Freddie Mac Guarantee. All classes will be subject to ongoing surveillance, which could result in upgrades or downgrades by DBRS after the date of issuance.

Notes:
All figures are in U.S. dollars unless otherwise noted.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The Rule 17g-7 Report of Representations and Warranties is hereby incorporated by reference and can be found by clicking on the link to the right under Other Research or by contacting us at info@dbrs.com.

The applicable methodology is CMBS Rating Methodology, which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link below or by contacting us at info@dbrs.com.