DBRS Morningstar Assigns Provisional Ratings to CIM Trust 2020-R5

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Mortgage-Backed Notes, Series 2020-R5 (the Notes) to be issued by CIM Trust 2020-R5 (CIM 2020-R5 or the Trust):

-- $214.7 million Class A1 at AAA (sf)
-- $182.5 million Class A1-A at AAA (sf)
-- $32.2 million Class A1-B at AAA (sf)
-- $214.7 million Class A1-IO at AAA (sf)
-- $26.2 million Class M1 at AAA (sf)
-- $26.2 million Class M1-IO at AAA (sf)

Classes A1-IO and M1-IO are interest-only notes. The class balances represent notional amounts.

Class A1 is an exchangeable note. This class can be exchanged for a combination of exchanged notes (Classes A1-A and A1-B) as specified in the offering documents.

The AAA (sf) rating on the Notes reflects 28.80% of credit enhancement provided by subordinated Notes in the transaction.

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 primarily seasoned performing and reperforming first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 2,222 loans with a total principal balance of $338,416,358 as of the Cut-Off Date (May 31, 2020).

The loans are approximately 150 months seasoned. As of the Cut-Off Date, 97.8% of the pool is current and 2.2% is in bankruptcy. Approximately 86.0% and 51.7% of the mortgage loans have been zero times (x) 30 days delinquent for the past 12 months and 24 months, respectively, under the Mortgage Bankers Association delinquency method.

In the portfolio, 68.7% of the loans are modified. The modifications happened more than two years ago for 76.1% of the modified loans. Within the pool, 722 mortgages have non-interest-bearing deferred amounts, which equate to 4.3% of the total principal balance. Unless specified otherwise, all statistics on the mortgage loans in the related presale report are based on the current balance, including the applicable non-interest-bearing deferred amounts.

Approximately 6.9% of the loans in the pool are subject to the Consumer Financial Protection Bureau’s Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. Of the loans that are subject to the ATR/QM rules, 3.2% are classified as non-QM and 3.7% are exempt. The remaining 93.1% of the pool is exempt because of seasoning.

Fifth Avenue Trust (the Seller) acquired the mortgage loans prior to the Cut-Off Date and, through a wholly owned subsidiary, Funding Depositor LLC (the Depositor), will contribute the 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, consisting of a portion of the Class B3 and C Notes in the aggregate, to satisfy the credit risk retention requirements. Various entities originated and previously serviced the loans through purchases in the secondary market.

On the Closing Date, Fay Servicing, LLC will service 53.1% of the mortgage loans by balance and Select Portfolio Servicing, Inc. (SPS) will service 14.9%. An interim servicer will service approximately 32.0% of the pool until servicing is transferred to SPS on or about July 17, 2020.

Prior to CIM 2020-R5, Chimera had issued 32 securitizations under the CIM shelf since 2014, all of which were backed by seasoned, subprime, reperforming, or nonperforming loans. DBRS Morningstar rated four of the previously issued CIM reperforming loan (RPL) deals. DBRS Morningstar reviewed the historical performance of both the rated and unrated transactions issued under the CIM shelf, particularly with respect to the reperforming transactions, which may or may not have collateral attributes similar to CIM 2020-R5. The reperforming CIM transactions generally have delinquencies and losses in line with expectations for previously distressed assets.

There will not be any advancing of delinquent principal or interest on any mortgages by the Servicers or any other party to the transaction; however, each 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.

On or after 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 transaction employs a sequential-pay cash flow structure and principal proceeds can be used to cover interest shortfalls on the Class A1, A1-IO, M1, and M1-IO Notes.

Coronavirus Disease (COVID-19) Pandemic and Forbearance
The coronavirus pandemic and the resulting isolation measures have caused an economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar anticipates that delinquencies may continue to rise in the coming months for many residential mortgage-backed security (RMBS) asset classes, some meaningfully.

RPL is a traditional RMBS asset class that consists of securitizations backed by pools of seasoned performing and reperforming residential home loans. Although borrowers in these pools may have experienced delinquencies in the past, the loans have been largely performing for the past six to 24 months since issuance. Generally, these pools are highly seasoned and contain sizable concentrations of previously modified loans.

As a result of the coronavirus, DBRS Morningstar expects increased delinquencies, loans on forbearance plans, and a potential near-term decline in the values of the mortgaged properties. Such deteriorations may adversely affects borrowers’ ability to make monthly payments, refinance their loans, or sell properties in an amount sufficient to repay the outstanding balance of their loans.

In connection with the economic stress assumed under its moderate scenario (see “Global Macroeconomic Scenarios: June Update,” published on June 1, 2020), for the RPL asset class, DBRS Morningstar applies more severe market value decline (MVD) assumptions across all rating categories than it previously used. DBRS Morningstar derives such MVD assumptions through a fundamental home price approach based on the forecasted unemployment rates and GDP growth outlined in the moderate scenario. In addition, for pools with loans on forbearance plans, DBRS Morningstar may assume higher loss expectations above and beyond the coronavirus assumptions. Such assumptions translate to higher expected losses on the collateral pool and correspondingly higher credit enhancement.

In the RPL asset class, while the full effect of the coronavirus may not occur until a few performance cycles later, DBRS Morningstar generally believes that loans with previous delinquencies, recent modifications, or higher updated loan-to-value ratios (LTVs) may be more sensitive to economic hardships resulting from higher unemployment rates and lower incomes. Borrowers with previous delinquencies or recent modifications have exhibited difficulty in fulfilling payment obligations in the past and may revert to spotty payment patterns in the near term. Higher LTV borrowers with lower equity in their properties generally have fewer refinance opportunities and, therefore, slower prepayments.

In addition, for this transaction, as permitted by the Coronavirus Aid, Relief, and Economic Security Act, signed into law on March 27, 2020, 3.8% of the borrowers are on forbearance or deferral plans because the borrowers reported financial hardship related to coronavirus. These forbearance plans allow temporary payment holidays, followed by repayment once the forbearance period ends.

For this transaction, DBRS Morningstar applied additional assumptions to evaluate the impact of potential cash flow disruptions on the rated tranches, stemming from (1) lower principal and interest (P&I) collections and (2) no servicing advances on delinquent P&I. These assumptions include:

(1) Increased delinquencies for the first 12 months,
(2) No voluntary prepayments for the first 12 months,
(3) No liquidation recovery for the first 12 months.

For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: "DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19)," dated March 12, 2020; "DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19)," dated March 20, 2020; and “Global Macroeconomic Scenarios: June Update,” dated June 1, 2020.

The ratings reflect transactional strengths that include the following:
-- Seasoning,
-- Low LTVs,
-- Satisfactory third-party due diligence review,
-- Sequential-pay structure, and
-- Current delinquency status.

The transaction also includes the following challenges:
-- Representations and warranties standard,
-- No servicer advances of delinquent P&I, and
-- Borrowers on deferral plans.

The DBRS Morningstar ratings of AAA (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 full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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 (April 1, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

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.dbrsmorningstar.com or contact us at [email protected].

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