DBRS Morningstar Assigns Provisional Ratings to BINOM Securitization Trust 2022-RPL1

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the BINOM 2022-RPL1 Mortgage-Backed Notes, Series 2022-RPL1 (the Notes) to be issued by BINOM Securitization Trust 2022-RPL1 (BINOM 2022-RPL1 or the Issuer):

-- $211.5 million Class A1 at AAA (sf)
-- $34.4 million Class M1 at AA (sf)
-- $16.6 million Class M2 at A (low) (sf)
-- $10.7 million Class M3 at BBB (low) (sf)
-- $10.9 million Class B1 at BB (low) (sf)
-- $7.4 million Class B2 at B (sf)

The AAA (sf) rating on the Notes reflects 31.80% of credit enhancement provided by subordinated certificates. The AA (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 20.70%, 15.35%, 11.90%, 8.40%, and 6.00% of credit enhancement, respectively.

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

The BINOM 2022-RPL1 securitization is backed by seasoned performing and reperforming first-lien mortgages funded by the issuance of the Notes. The Notes are backed by 1,887 loans with a total principal balance of $310,070,311 as of the Cut-Off Date (January 1, 2022).

BINOM 2022-RPL1 represents the first rated seasoned performing and reperforming loan securitization issued by the Sponsor, BREDS IV Residential Holdco L.L.C., from the BINOM shelf. The Sponsor is a special-purpose entity owned by the private equity fund Blackstone Real Estate Debt Strategies IV L.P. and its managed accounts.

For this deal, the mortgage loans are approximately 176 months seasoned. The portfolio contains approximately 94.8% modified loans, and modifications happened more than two years ago for approximately 84.9% of the modified loans. Within the pool, 1,075 mortgages, equating to approximately 13.1% of the total principal balance, have non-interest-bearing deferred amounts. There are no Home Affordable Modification Program and proprietary principal forgiveness amounts included in the deferred amounts. The majority of the pool (95.8%) is not subject to the Consumer Financial Protection Bureau's Ability-to-Repay/Qualified Mortgage rules because of seasoning.

As of the Cut-Off Date, 94.1% of the pool is current and 5.9% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method. Approximately 4.9% of the mortgage loans have been zero times 30 days delinquent (0 x 30) for at least the past 24 months under the MBA delinquency method. At the same time, approximately 80.5% of the mortgage loans have been 0 x 30 for at least the past 12 and six months.

The Sponsor, or an affiliate, acquired the loans directly or indirectly from various originators or other secondary market participants prior to the Closing Date. On the Closing Date, B4R Depositor, LLC, the Depositor, will contribute the loans to the Trust.

The Sponsor, or a majority-owned affiliate, will retain a 5% eligible vertical residual interest consisting of at least 5% of each class of Notes other than the Class R Notes to satisfy the credit risk retention requirements promulgated under the Dodd-Frank Act. Such retention aligns Sponsor and investor interest in the capital structure.

As of the Cut-Off Date, the loans are serviced by Rushmore Loan Management Services (64.3%) and NewRez LLC doing business as Shellpoint Mortgage Servicing (35.7%). 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, the Servicers are obligated to certain make advances in respect of homeowner's association fees, taxes, and insurance, and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

On or after the earlier of (1) the payment date in January 2025 or (2) the date on which the aggregate stated principal balance of the loans falls to 10% or less of the Cut-Off Date balance, the Issuer may, at its option, redeem the Notes at the optional termination price (par plus interest, including interest and Net Weighed-Average Coupon (WAC) shortfalls, fees, and post-closing deferred amounts and servicing advances) described in the transaction documents (Optional Redemption).

The transaction employs a sequential-pay cash flow structure. Principal proceeds and excess interest can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M2 and more subordinate bonds will not be paid from principal proceeds until the more senior classes are retired. In addition, within the principal payment priority, the Class A1 Notes as well as the Class M1 Notes all receive interest before principal gets paid to Class A1 Notes (IIPP). This feature preserves interest payments to those more senior classes.

Certain cash flow features in this transaction are less commonly seen in DBRS Morningstar-rated seasoned securitizations, such as the presence of the Credit Event tied to the early redemption of the Notes, interest rates on the Notes, and repayment of Net WAC shortfalls:

-- The transaction includes an Expected Redemption Date (ERD). ERD is the payment date in January 2027 on which the Issuer is expected to redeem the Notes. Failure to do so constitutes a Credit Event.
-- The interest rates on the Notes step up after a Credit Event, as described in the transaction documents. The interest rates on the Notes are set at fixed rates, which are capped by Net WAC on or prior to a Credit Event and, after the Credit Event, adjusted Net WAC (the Net WAC adjusted for the non-Principal Only balance that excludes the Class B3 Note amount after the Class B3 coupon rate resets to zero following a Credit Event).
-- Notwithstanding the Notes' interest rates caps mentioned above, the Net WAC shortfall is defined only for Class A1 and M1 Notes (before the Credit Event only) and not defined for the other classes of Notes (either before or after the Credit Event). As such, if the Net WAC or Adjusted Net WAC, as applicable, falls below the fixed coupon rates (either initial or stepped up), the difference will not be paid to Class A1 and M1 Notes after a Credit Event, and to all other classes either before or after the Credit Event.
-- That said, if the Net WAC shortfalls occur before a Credit Event, then the interest amount may be used to repay such shortfalls on the Class A1 and M1 Notes before making interest payments on other Notes.
-- Also, the principal amount can be used to repay the Net WAC shortfalls, first to Class A1 and then, after the Class A1 Notes are paid off, to the Class M1 Notes, before being used to amortize the Note balance amounts. This feature reduces the likelihood that the Class A1 and M1 Note holders receive the coupon lower than the fixed rate. However, at the same time, it also reduces the interest and principal amount available to the more subordinate noteholders, and, as such, causes the structure to need elevated credit enhancement levels relative to a comparable structure where such shortfalls are repaid from the excess cash flow to all classes of Notes.

Such nuanced features were considered and taken into account in the DBRS Morningstar cash flow analysis.

CORONAVIRUS DISEASE (COVID-19) PANDEMIC IMPACT
The 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. Shortly after the onset of the pandemic, DBRS Morningstar saw an increase in delinquencies for many residential mortgage-backed securities (RMBS) asset classes.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term periods of payment relief that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forbear mortgage payments was widely available, driving forbearances to an elevated level. When the dust settled, loans with coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios (LTVs), and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.

For more information regarding the economic stress assumed under its baseline scenario, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update,” dated December 9, 2021.

The ratings reflect transactional strengths that include low LTVs, current loan status and payment history, satisfactory third-party due diligence review, and loan seasoning.

The ratings reflect transactional challenges that include the representations and warranties framework, no servicer advances of principal and interest, and missing assignments and endorsements.

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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