DBRS Morningstar Assigns Provisional Ratings to BRAVO Residential Funding Trust 2022-NQM1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage-Backed Notes, Series 2022-NQM1 (the Notes) to be issued by BRAVO Residential Funding Trust 2022-NQM1:

-- $281.2 million Class A-1 at AAA (sf)
-- $17.2 million Class A-2 at AA (high) (sf)
-- $23.1 million Class A-3 at A (high) (sf)
-- $15.4 million Class M-1 at BBB (high) (sf)
-- $10.6 million Class B-1 at BB (high) (sf)
-- $6.5 million Class B-2 at B (high) (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 24.05% of credit enhancement provided by subordinate certificates. The AA (high) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and B (high) (sf) ratings reflect 19.40%, 13.15%, 9.00%, 6.15%, and 4.40% 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 792 loans with a total principal balance of approximately $370,301,909 as of the Cut-Off Date (January 31, 2022).

The top originators for the mortgage pool are Acra Lending, formally known as Citadel Servicing Corporation (Acra; 50.3%), OCMBC, Inc. doing business as LoanStream Mortgage (LoanStream; 26.4%), and First Guaranty Mortgage Corporation (FGMC; 14.1%). The remaining originators each comprise less than 10.0% of the mortgage loans. The Servicers of the loans are Citadel Servicing Corporation doing business as Acra Lending (CSC; 50.4%) and Rushmore Loan Management Services LLC (Rushmore; 49.6%). The CSC-serviced mortgage loans will generally be subserviced by ServiceMac, LLC (ServiceMac), under a subservicing agreement dated September 18, 2020.

Nationstar Mortgage LLC (Nationstar) 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. Computershare Trust Company, N.A. (rated BBB with a Stable trend by DBRS Morningstar) will act as Custodian.

The pool is about 10 months seasoned on a weighted average (WA) basis, although seasoning may span five to 58 months. Except for 16 loans (1.5% 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. Approximately 36.5% of the loans in the pool made to investors for business purposes are exempt from the CFPB Ability-to-Repay (ATR) and QM rules.

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, each servicer is 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 consisting of the Class B-3 and Class XS Notes 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 February 2025 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 A-3.

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.

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 the following:

-- Robust loan attributes and pool composition,
-- Compliance with the ATR rules,
-- 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, investor, and no ratio loans,
-- No servicer advances of delinquent principal and interest,
-- The representations and warranties standard, and

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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