DBRS Morningstar Assigns Provisional Ratings to CFMT 2022-HB9, LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Asset-Backed Notes, Series 2022-2 to be issued by CFMT 2022-HB9, LLC:

-- $268.3 million Class A at AAA (sf)
-- $14.1 million Class M1 at AA (low) (sf)
-- $12.4 million Class M2 at A (low) (sf)
-- $17.7 million Class M3 at BBB (low) (sf)
-- $18.8 million Class M4 at BB (low)
-- $12.7 million Class M5 at B (sf)

The AAA (sf) rating reflects 23.07% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 19.03%, 15.48%, 10.40%, 5.01% and 1.37% of credit enhancement, respectively.

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

Lenders typically offer reverse mortgage loans to people who are at least 62 years old. Through reverse mortgage loans, borrowers have access to home equity through a lump sum amount or a stream of payments without periodically repaying principal or interest, allowing the loan balance to accumulate over a period of time until a maturity event occurs. Loan repayment is required (1) if the borrower dies, (2) if the borrower sells the related residence, (3) if the borrower no longer occupies the related residence for a period (usually a year), (4) if it is no longer the borrower’s primary residence, (5) if a tax or insurance default occurs, or (6) if the borrower fails to properly maintain the related residence. In addition, borrowers must be current on any homeowner’s association dues if applicable. Reverse mortgages are typically nonrecourse; borrowers don’t have to provide additional assets in cases where the outstanding loan amount exceeds the property’s value (the crossover point). As a result, liquidation proceeds will fall below the loan amount in cases where the outstanding balance reaches the crossover point, contributing to higher loss severities for these loans.

As of the July 31, 2022, Cut-Off Date, the collateral has approximately $348.8 million in unpaid principal balance (UPB) from 1,470 performing and nonperforming home equity conversion mortgage (HECM) reverse mortgage loans and real estate owned (REO) assets secured by first liens typically on single-family residential properties, condominiums, multifamily (two- to four-family) properties, manufactured homes, and planned unit developments. The mortgage assets were originated between 1999 and 2015. Of the total assets, four have a fixed interest rate (0.15% of the balance), with a 4.980% weighted-average coupon (WAC). The remaining 1,466 assets have floating-rate interest (99.85% of the balance) with a 3.567% WAC, bringing the entire collateral pool to a 3.569% WAC.
The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (Class A Notes) have been reduced to zero. This structure provides credit enhancement in the form of subordinate classes and reduces the effect of realized losses. These features increase the likelihood that holders of the most senior class of notes will receive regular distributions of interest and/or principal. All note classes have available fund caps.

Classes M1, M2, M3, M4, M5, and M6 (together, the Class M Notes) have principal lockout terms insofar as they are not entitled to principal payments until after the expected final payment of the upstream notes. Classes M5 and M6 are not entitled to any payments of principal prior to a Redemption Date, unless an Acceleration Event or Auction Failure Event occurs. Available cash will be trapped until these dates, at which stage the notes will start to receive payments. Note that the DBRS Morningstar cash flow as it pertains to each note models the first payment being received after these dates for each of the respective notes; hence, at the time of issuance, these rules are not likely to affect the natural cash flow waterfall.

A failure to pay the Notes in full on the Mandatory Call Date (September 2027) will trigger a mandatory auction of all assets. If the auction fails to elicit sufficient proceeds to pay off the notes, another auction will follow every three months, for up to a year after the Mandatory Call Date. If these have failed to pay off the notes, this is deemed an Auction Failure, and subsequent auctions will proceed every six months.

If the Class M5 and Class M6 Notes have not been redeemed or paid in full by the Mandatory Call Date, these notes will accrue Additional Accrued Amounts. These Additional Accrued Amounts are not rated by DBRS Morningstar.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, or governance factors that had a significant or relevant effect on the credit analysis.

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/396929 (May 17, 2022).

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

The principal methodology is U.S. Reverse Mortgage Securitization Ratings Methodology (May 8, 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.

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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