DBRS Assigns Provisional Ratings to CIM Trust 2017-7

DBRS, Inc. (DBRS) assigned the following provisional ratings to the Mortgage-Backed Notes, Series 2017-7 (the Notes) issued by CIM Trust 2017-7 (the Trust):

-- $264.2 million Class A at AAA (sf)
-- $264.2 million Class A-IO at AAA (sf)
-- $47.7 million Class M1 at AA (sf)
-- $47.7 million Class M1-IO at AA (sf)
-- $23.8 million Class M2 at A (sf)
-- $23.8 million Class M2-IO at A (sf)
-- $13.1 million Class M3 at BBB (sf)
-- $13.1 million Class M3-IO at BBB (sf)
-- $34.3 million Class B1 at BB (sf)
-- $37.4 million Class B2 at B (sf)

Classes A-IO, M1-IO, M2-IO and M3-IO are interest-only Notes. The class balances represent notional amounts.

The AAA (sf) ratings on the Notes reflect the 48.45% of credit enhancement provided by subordinated Notes in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect credit enhancement of 39.15%, 34.50%, 31.95%, 25.25% and 17.95%, respectively.

Other than the specified classes above, DBRS does not rate any other classes in this transaction.

This transaction is a securitization of a portfolio of seasoned performing and re-performing first-lien residential mortgages. The Notes are backed by 3,548 loans with a total principal balance of $512,446,384 as of the Cut-Off Date (August 31, 2017).

The loans are approximately 137 months seasoned. As of the Cut-Off Date, 90.5% of the pool is current, 6.6% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, 1.1% is 60 days delinquent and 1.8% is in bankruptcy. Approximately 32.4% and 83.4% of the mortgage loans have been zero times 30 days delinquent for the past 24 months and 12 months, respectively, under the MBA delinquency method.

The portfolio contains 83.2% modified loans. The modifications happened more than two years ago for 60.7% of the modified loans. Within the pool, 1,877 mortgages have non-interest-bearing deferred amounts, which equates to 6.7% of the total principal balance. Included in the deferred amounts are proprietary principal forgiveness and Home Affordable Modification Program principal reduction alternative amounts, which comprise approximately 0.6% of the total principal balance.

In accordance with the Consumer Financial Protection Bureau Ability-to-Repay (ATR) and Qualified Mortgage (QM) rules, only two loans (less than 0.1% of the pool) are designated as QM Safe Harbor and the rest are not subject to the ATR/QM rules.

The Sellers (Chimera Funding TRS, LLC and Chimera Residential Mortgage Inc.) acquired the loans on or prior to August 22, 2017, and, through a wholly owned subsidiary, Chimera Mortgage Securities LLC (the Depositor), will contribute loans to the Trust. As the Sponsor, Chimera Investment Corporation (Chimera) or one of its majority-owned affiliates, will acquire and retain a 5% eligible horizontal residual interest in the Notes (other than the Class X and Class R Notes), consisting of the Class B3 Notes and Class C Notes in the aggregate, to satisfy the credit risk retention requirements. The loans were originated and previously serviced by various entities through purchases in the secondary market. As of the Cut-Off Date, the loans are serviced by Select Portfolio Servicing, Inc.

There will not be any advancing of delinquent principal or interest on any mortgages by the servicer or any other party to the transaction; however, the servicer is obligated to make advances in respect of homeowner association fees, taxes and insurance as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The transaction employs a sequential-pay cash flow structure, and principal proceeds can be used to cover interest shortfalls on the Class A, A-IO, M1 and M1-IO Notes.

The lack of principal and interest advances on delinquent mortgages may increase the possibility of periodic interest shortfalls to the Noteholders; however, principal proceeds can be used to pay interest to the Notes sequentially and subordination levels are greater than expected losses, which may provide for timely payment of interest to the rated Notes.

On or after the earlier of the Payment Date in October 2022 and the Payment Date when the aggregate note amount of the offered Notes is reduced to 10% of the Closing Date note amount, the Call Option Holder (the Depositor or any successor or assignee) has the option to purchase all of the mortgage loans and any real estate-owned (REO) properties at a certain purchase price equal to the unpaid principal balance of the mortgage loans, plus the fair market value of the REO properties and any unpaid expenses and reimbursement amounts.

The ratings reflect transactional strengths that include robust structural features and a strong servicer. Additionally, a satisfactory third-party due diligence review was performed on the portfolio with respect to regulatory compliance, payment history and data capture as well as title and tax review. Servicing comments were reviewed for a sample of loans that were delinquent. Updated broker price opinions or full appraisals were provided for 100.0% of the pool; however, a reconciliation was not performed on the updated values.

The transaction employs a relatively weak representations and warranties (R&W) framework that includes an unrated representation provider (Chimera), certain knowledge qualifiers and fewer mortgage loan representations relative to DBRS criteria for seasoned pools. Mitigating factors include (1) a comprehensive due diligence review, (2) clawback on knowledge qualifiers and (3) a strong R&W enforcement mechanism, including delinquency review trigger.

Within the mortgage pool, 123 properties are located in certain counties that the Federal Emergency Management Agency (FEMA) has designated as major disaster areas and in which FEMA has authorized individual assistance to homeowners as a result of Hurricane Harvey. For these loans, post-disaster inspections were performed on the properties. As a result of the inspections, two loans were reported to have minor damage. In its analysis, DBRS adjusted the property values downward on these loans.

The mortgage pool contains 302 loans that are located in areas that may have been affected by Hurricane Irma. DBRS did not receive any further information as to whether these properties were damaged as a result of the hurricane. Within 30 days of the Closing Date, the Sponsor will order inspections for such loans and repurchase any loans with property damage as a result of Hurricane Irma. Nonetheless, DBRS ran additional scenario analyses to stress these loans and test that the rated bonds can withstand further property value declines.

The DBRS ratings of AAA (sf) and AA (sf) address the timely payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes. The DBRS ratings of A (sf), BBB (sf), BB (sf) and B (sf) address the ultimate payment of interest and full payment of principal by the legal final maturity date in accordance with the terms and conditions of the related Notes.

The full description of the strengths, challenges and mitigating factors is detailed in the related presale report. Please see the related appendix for additional information regarding sensitivity of assumptions used in the rating process.

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

The principal methodologies are RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules, Unified Interest Rate Model for Rating U.S. Structured Finance Transactions, Third-Party Due Diligence Criteria for U.S. RMBS Transactions, Representations and Warranties Criteria for U.S. RMBS Transactions, Operational Risk Assessment for U.S. RMBS Originators, Operational Risk Assessment for U.S. RMBS Servicers and Legal Criteria for U.S. Structured Finance, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.