DBRS Morningstar Finalizes Provisional Ratings on BRAVO Residential Funding Trust 2019-NQM2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Mortgage-Backed Notes, Series 2019-NQM2 (the Notes) issued by BRAVO Residential Funding Trust 2019-NQM2 (the Trust):

-- $255.5 million Class A-1 Notes at AAA (sf)
-- $17.1 million Class A-2 Notes at AA (sf)
-- $26.4 million Class A-3 Notes at A (sf)
-- $13.3 million Class M-1 Notes at BBB (sf)
-- $9.6 million Class B-1 Notes at BB (sf)
-- $9.0 million Class B-2 Notes at B (sf)

The AAA (sf) rating on the Class A-1 Notes reflects 25.10% of credit enhancement provided by subordinated Notes in the pool. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 20.10%, 12.35%, 8.45%, 5.65%, and 3.00% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 742 loans with a total principal balance of $341,102,250 as of the Cut-Off Date (October 31, 2019). By balance, 40.5% of the loans included in this pool were included in COLT 2017-2 Mortgage Loan Trust, a DBRS Morningstar-rated securitization that was collapsed and cleaned up after the August 2019 distribution. The remaining 59.5% of the loans were acquired by affiliates of the sponsor.

The mortgage loans were originated by Caliber Home Loans, Inc. (41.3%); AmWest Funding Corp. (10.0%); Excelerate Capital (9.7%); A&D Mortgage LLC (8.5%); LoanStream Mortgage (8.2%); Impac Mortgage Holdings, Inc. (6.4%); and various other originators, each comprising less than 5.0% of the mortgage loans.

Although a portion of the mortgage loans were originated to satisfy the Consumer Financial Protection Bureau (CFPB) Ability-to-Repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government, or private-label non-agency prime jumbo products for various reasons. In accordance with the CFPB Qualified Mortgage (QM) rules, 1.5% of the loans by balance are designated as QM Safe Harbor, 11.7% as QM Rebuttable Presumption, and 63.1% as non-QM. QM/ATR-exempt loans consist of loans made to investors for business purposes (approximately 22.3% of the loans by balance) and loans originated by Commerce Home Mortgage, LLC, a community development financial institution (CDFI; 1.4% of the pool). While CDFI loans are not required to adhere to the ATR rules, the CDFI loans included in this pool were documented with at least 12 months of income documentation and were made to mostly creditworthy borrowers with a weighted-average credit score of 726.

Neither the servicers nor any other party to the transaction will advance delinquent principal or interest on any mortgage loan; however, the servicers are obligated to make advances in respect of taxes and insurance, the cost of preservation, the restoration and protection of mortgaged properties, and any enforcement or judicial proceedings, including foreclosures and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

On or after the date when the aggregate principal balance of the mortgage loans and any real estate owned (REO) properties is reduced to 30% of the Cut-Off Date balance, the holder of the Trust Certificates has the option to purchase all of the outstanding loans and REO properties at a price equal to the outstanding balance plus accrued and unpaid interest, including any fees, expenses, indemnification amounts, and unpaid extraordinary Trust expenses.

This transaction employs a cash flow structure that is similar to many non-QM securitizations. The transaction contains a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Notes as the outstanding senior Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts.

The ratings reflect transactional strengths that include the following:

-- Robust loan attributes and pool composition,
-- Satisfactory third-party due diligence review,
-- Compliance with the ATR rules, and
-- Current loans and faster prepayments.

The transaction also includes the following challenges:

-- No servicer advances of delinquent principal and interest,
-- Representations and warranties standard, and
-- Certain non-prime, non-QM, CDFI, and investor loans.

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

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, which can be found on dbrs.com under Methodologies & Criteria.

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

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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