DBRS Morningstar Assigns Provisional Ratings to BRAVO Residential Funding Trust 2021-NQM3

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage-Backed Notes, Series 2021-NQM3 (the Notes) to be issued by BRAVO Residential Funding Trust 2021-NQM3:

-- $256.2 million Class A-1 at AAA (sf)
-- $21.1 million Class A-2 at AA (sf)
-- $20.1 million Class A-3 at A (sf)
-- $15.4 million Class M-1 at BBB (sf)
-- $8.1 million Class B-1 at BB (sf)
-- $7.1 million Class B-2 at B (sf)

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

The AAA (sf) rating on the Class A-1 Notes reflects 25.95% of credit enhancement provided by subordinate certificates. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 19.85%, 14.05%, 9.60%, 7.25%, and 5.20% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate prime and nonprime first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 934 loans with a total principal balance of approximately $345,957,053 as of the Cut-Off Date (September 30, 2021).

The top originator for the mortgage pool is Summit Mortgage Bankers (11.3%). The remaining originators each comprise less than 7.0% of the mortgage loans. The Servicers of the loans are Select Portfolio Servicing, Inc. (70.2%), Specialized Loan Servicing LLC (25.4%), Rushmore Loan Management Services LLC (3.8%), and AmWest Funding Corp. (0.6%).

Nationstar Mortgage LLC will act as a Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar), an affiliate of Citigroup Inc., will act as Indenture Trustee, Paying Agent, Note Registrar, and Owner Trustee. Wells Fargo Bank, N.A. (rated AA with a Negative trend by DBRS Morningstar) will act as Custodian.

The proposed pool is about 35 months seasoned on a weighted average (WA) basis, although seasoning may span from 19 to 91 months. Except for 41 loans (4.3% of the pool) that were 30 to 59 days delinquent as of the Cut-Off Date, the loans have been performing since origination.

In accordance with the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) rules, 63.5% of the loans by balance are designated as non-QM. Twenty-nine loans (4.0% of the pool) are designated as Safe Harbor. Approximately 32.5% of the loans in the pool made to investors for business purposes are exempt from the CFPB Ability-to-Repay (ATR) and QM rules. Additionally, Commerce and Quontic Bank originated approximately (2.8%) of the loans and are each designated by the U.S. Department of the Treasury as a Community Development Financial Institution (CDFI). Such loans were originated under no income verification programs that consider property value and borrower's credit, among other factors, to qualify a borrower for a mortgage loan. While CDFI loans are not required to comply with the ATR rules, the CDFI loans included in this pool were made to mostly creditworthy borrowers with a WA credit score of 724 and an original combined loan-to-value ratio of 54.5%.

There will be no advancing of delinquent principal or interest on any mortgage loan by the servicers or any other party to the transaction; however, the servicers are obligated to make advances in respect of taxes and insurance; the cost of preservation, 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.

The Sponsor or a majority-owned affiliate of the Sponsor will acquire and intends to retain an eligible horizontal residual interest in the Issuer in the amount of not less than 5.0% of the aggregate fair value of the Notes (other than the Class SA, Class FB, and Class R Notes) to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The holder of the Trust Certificates may, at its option, on or after the earlier of (1) the payment
date in October 2024 or (2) the date on which the total loans' and real estate owned (REO) properties' balance falls to or below 30% of the loan balance as of the Cut-Off Date (Optional Termination Date), purchase all of the loans and REO properties at the optional termination price described in the transaction documents.

The Depositor, at its option, may purchase any mortgage loan that is 90 days or more delinquent under the Mortgage Banker Association (MBA) method (or in the case of any loan that has been subject to a Coronavirus Disease (COVID-19) pandemic-related forbearance plan, on any date from and after the date on which such loan becomes 90 days MBA delinquent following the end of the forbearance period) at the repurchase price (Optional Purchase) described in the transaction documents. The total balance of such loans purchased by the Depositor will not exceed 10% of the Cut-Off Date balance.

The transaction's cash flow structure is similar to that of other non-QM securitizations. The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). Principal proceeds can be used to cover interest shortfalls on the Class A-1 and Class A-2 Notes (IIPP) before being applied sequentially to amortize the balances of the senior and subordinated notes. For the Class A-3 Notes (only after a Credit Event) and for the mezzanine and subordinate classes of notes (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior notes have been paid off in full. Also, the excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts due to Class A-1 down to Class B-2.

Coronavirus Impact
The coronavirus pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. DBRS Morningstar saw increases in delinquencies for many residential mortgage-backed securities (RMBS) asset classes, shortly after the onset of coronavirus.

Such mortgage delinquencies were mostly in the form of forbearance, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of coronavirus, because the option to forebear mortgage payments was so widely available, it drove forbearance to a very high level. When the dust settled, coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and good underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending down in recent months as forbearance periods come to an end for many borrowers.

As of the Cut-Off Date, nine borrowers within the pool (1.0% of the pool by balance) are currently subject to a coronavirus-related payment relief plan with the Servicer. In the event a borrower requests or enters into a coronavirus-related forbearance plan after the Cut-Off Date but prior to the Closing Date, the Sponsor will remove such loan from the mortgage pool and remit the related Closing Date substitution amount. Loans that enter a coronavirus-related forbearance or payment relief plan on or after the Closing Date will remain in the pool.

For more information regarding the economic stress assumed under its baseline scenario, please see the DBRS Morningstar commentary “Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 2021.

The ratings reflect transactional strengths that include the following:

-- Robust loan attributes and pool composition,
-- Compliance with the ATR rules,
-- Strong Servicer,
-- Improved underwriting standards,
-- Current loan status, and
-- Certain Aspects of Third-Party Due-Diligence Reviews.

The transaction also includes the following challenges:

-- Certain nonprime, non-QM, foreign national, and investor loans,
-- No servicer advances of delinquent principal and interest,
-- The representations and warranties standard, and
-- Limited Tax, Title, and Lien Reviews.

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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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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