DBRS Morningstar Assigns Provisional Ratings to BRAVO Residential Funding Trust 2023-NQM1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage-Backed Notes, Series 2023-NQM1 (the Notes) to be issued by BRAVO Residential Funding Trust 2023-NQM1:

-- $248.3 million Class A-1 at AAA (sf)
-- $31.1 million Class A-2 at AA (sf)
-- $21.2 million Class A-3 at A (sf)
-- $16.4 million Class M-1 at BBB (sf)
-- $11.0 million Class B-1 at BB (sf)
-- $10.2 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 32.05% of credit enhancement provided by subordinate notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 23.55%, 17.75%, 13.25%, 10.25%, and 7.45% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Mortgage-Backed Notes, Series 2023-NQM1 (the Notes). The Notes are backed by 788 loans with a total principal balance of approximately $365,408,561, as of the Cut-Off Date (December 31, 2022).

The pool is, on average, eight months seasoned with loan age ranging from one to 105 months. The top originators for the mortgage pool are Citadel Servicing Corporation doing business as Acra Lending (Acra; 48.9%), and OCMBC, Inc. doing business as LoanStream Mortgage (LoanStream; 44.7%). The remaining originators each comprise less than 5.0% of the mortgage loans. The Servicers of the loans are Rushmore Loan Management Services LLC (Rushmore; 51.1%) and Acra Lending, formerly known as Citadel Servicing Corporation (CSC; 48.9%). The CSC-serviced mortgage loans will 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), will act as Indenture Trustee, Paying Agent, and Owner Trustee. Computershare Trust Company, N.A. (rated BBB with a Stable trend by DBRS Morningstar) will act as Custodian.

Except for 16 loans (1.6% of the pool) that were 30 to 59 days delinquent, according to the Mortgage Bankers Association (MBA) delinquency calculation method, 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, 57.3% of the loans by balance are designated as non-QM and 1.0% as QM Rebuttable Presumption. Approximately 41.5% of the loans in the pool made to investors for business purposes are exempt from the CFPB Ability-to-Repay (ATR) and QM rules. No loan has a loan application date before January 10, 2014, and, therefore, each loan is subject to the QM/ATR Rules issued by the CFPB as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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 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 January 2026 or (2) the date on which the balance of mortgage loans and real estate owned (REO) properties 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 Bankers 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.

Of note, the Class A-1, A-2, and A-3 Notes coupon rates step up by 100 basis points on and after the payment date in February 2027. Also, the interest and principal otherwise payable to the Class B-3 Notes as accrued and unpaid interest may be used to pay the Class A-1, A-2, and A-3 Notes Cap Carryover Amounts before and after the Class A coupons step up.

On January 15th, FEMA announced that Federal Disaster Assistance was made available to the State of California related to several winter storms, flooding, landslides, and mudslides that began on December 27, 2022. At this time, the sponsor has informed DBRS Morningstar that it was not aware of Mortgage Loans secured by Mortgaged Properties that are located in a FEMA disaster area that have suffered any disaster-related damage. The transaction documents include representations and warranties regarding the property conditions, which state that the properties have not suffered damage that would have a material and adverse impact on the values of the properties (including events such as windstorm, flood, earth movement, and hurricane). In a sensitivity analysis, DBRS Morningstar ran an additional scenario applying reduction of property values in certain areas of California that may have been impacted.

The transaction assumptions consider DBRS Morningstar's baseline macroeconomic scenarios for rated sovereign economics, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: December 2022 Update,” dated December 21, 20222. These baseline macroeconomic scenarios replace DBRS Morningstar's moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

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:

-- Debt Service Coverage Ratio (DSCR) Loans
-- Certain Non-Prime, Non-QM, Investor Loans, and Loans to ITIN Residents
-- No servicer advances of delinquent principal and interest; and
-- The representations and warranties standard.

The full description of the strengths, challenges, and mitigating factors is detailed in the related Presale Report.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/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/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology applicable to the ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (April 1, 2020; https://www.dbrsmorningstar.com/research/359116).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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/407678/baseline-macroeconomic-scenarios-for-rated-sovereigns-december-2022-update

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].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (May 4, 2020),
https://www.dbrsmorningstar.com/research/360574/
-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153/
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
https://www.dbrsmorningstar.com/research/366613/
-- Representations and Warranties Criteria for U.S. RMBS Transactions (April 22, 2020),
https://www.dbrsmorningstar.com/research/359902/
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008/
-- U.S. Residential Mortgage Originator Rankings (August 28, 2020), https://www.dbrsmorningstar.com/research/366186/
-- Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
https://www.dbrsmorningstar.com/research/405664/
-- Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),
https://www.dbrsmorningstar.com/research/405665/

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].