Press Release

DBRS Morningstar Assigns Provisional Ratings to Connecticut Avenue Securities Trust 2023-R02

RMBS

February 02, 2023

DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Connecticut Avenue Securities (CAS), Series 2023-R02 Notes (the Notes) to be issued by Connecticut Avenue Securities Trust 2023-R02 (CAS 2023-R02):

-- $375.3 million Class 1M-1 at A (low) (sf)
-- $154.0 million Class 1M-2 at BBB (sf)
-- $114.0 million Class 1B-1 at BB (sf)
-- $65.8 million Class 1B-2 at B (sf)
-- $51.3 million Class 1M-2A at BBB (high) (sf)
-- $51.3 million Class 1M-2B at BBB (sf)
-- $51.3 million Class 1M-2C at BBB (sf)
-- $57.0 million Class 1B-1A at BBB (low) (sf)
-- $57.0 million Class 1B-1B at BB (sf)
-- $51.3 million Class 1E-A1 at BBB (high) (sf)
-- $51.3 million Class 1A-I1 at BBB (high) (sf)
-- $51.3 million Class 1E-A2 at BBB (high) (sf)
-- $51.3 million Class 1A-I2 at BBB (high) (sf)
-- $51.3 million Class 1E-A3 at BBB (high) (sf)
-- $51.3 million Class 1A-I3 at BBB (high) (sf)
-- $51.3 million Class 1E-A4 at BBB (high) (sf)
-- $51.3 million Class 1A-I4 at BBB (high) (sf)
-- $51.3 million Class 1E-B1 at BBB (sf)
-- $51.3 million Class 1B-I1 at BBB (sf)
-- $51.3 million Class 1E-B2 at BBB (sf)
-- $51.3 million Class 1B-I2 at BBB (sf)
-- $51.3 million Class 1E-B3 at BBB (sf)
-- $51.3 million Class 1B-I3 at BBB (sf)
-- $51.3 million Class 1E-B4 at BBB (sf)
-- $51.3 million Class 1B-I4 at BBB (sf)
-- $51.3 million Class 1E-C1 at BBB (sf)
-- $51.3 million Class 1C-I1 at BBB (sf)
-- $51.3 million Class 1E-C2 at BBB (sf)
-- $51.3 million Class 1C-I2 at BBB (sf)
-- $51.3 million Class 1E-C3 at BBB (sf)
-- $51.3 million Class 1C-I3 at BBB (sf)
-- $51.3 million Class 1E-C4 at BBB (sf)
-- $51.3 million Class 1C-I4 at BBB (sf)
-- $102.7 million Class 1E-D1 at BBB (sf)
-- $102.7 million Class 1E-D2 at BBB (sf)
-- $102.7 million Class 1E-D3 at BBB (sf)
-- $102.7 million Class 1E-D4 at BBB (sf)
-- $102.7 million Class 1E-D5 at BBB (sf)
-- $102.7 million Class 1E-F1 at BBB (sf)
-- $102.7 million Class 1E-F2 at BBB (sf)
-- $102.7 million Class 1E-F3 at BBB (sf)
-- $102.7 million Class 1E-F4 at BBB (sf)
-- $102.7 million Class 1E-F5 at BBB (sf)
-- $102.7 million Class 1-X1 at BBB (sf)
-- $102.7 million Class 1-X2 at BBB (sf)
-- $102.7 million Class 1-X3 at BBB (sf)
-- $102.7 million Class 1-X4 at BBB (sf)
-- $102.7 million Class 1-Y1 at BBB (sf)
-- $102.7 million Class 1-Y2 at BBB (sf)
-- $102.7 million Class 1-Y3 at BBB (sf)
-- $102.7 million Class 1-Y4 at BBB (sf)
-- $51.3 million Class 1-J1 at BBB (sf)
-- $51.3 million Class 1-J2 at BBB (sf)
-- $51.3 million Class 1-J3 at BBB (sf)
-- $51.3 million Class 1-J4 at BBB (sf)
-- $102.7 million Class 1-K1 at BBB (sf)
-- $102.7 million Class 1-K2 at BBB (sf)
-- $102.7 million Class 1-K3 at BBB (sf)
-- $102.7 million Class 1-K4 at BBB (sf)
-- $154.0 million Class 1M-2Y at BBB (sf)
-- $154.0 million Class 1M-2X at BBB (sf)
-- $114.0 million Class 1B-1Y at BB (sf)
-- $114.0 million Class 1B-1X at BB (sf)
-- $65.8 million Class 1B-2Y at B (sf)
-- $65.8 million Class 1B-2X at B (sf)

Classes 1M-2, 1E-A1, 1A-I1, 1E-A2, 1A-I2, 1E-A3, 1A-I3, 1E-A4, 1A-I4, 1E-C1, 1C-I1, 1E-C2, 1C-I2, 1E-C3, 1C-I3, 1E-C4, 1C-I4, 1E-D1, 1E-D2, 1E-D3, 1E-D4, 1E-D5, 1E-F1, 1E-F2, 1E-F3, 1E-F4, 1E-F5, 1-X1, 1-X2, 1-X3, 1-X4, 1-Y1, 1-Y2, 1-Y3, 1-Y4, 1-J1, 1-J2, 1-J3, 1-J4, 1-K1, 1-K2, 1-K3, 1-K4, 1M-2Y, 1M-2X, 1B-1, 1B-1Y, 1B-1X, 1B-2Y, and 1B-2X are Related Combinable and Recombinable Notes (RCR Notes). Classes 1A-I1, 1A-I2, 1A-I3, 1A-I4, 1C-I1, 1C-I2, 1C-I3, 1C-I4, 1-X1, 1-X2, 1-X3, 1-X4, 1-Y1, 1-Y2, 1-Y3, 1-Y4, 1-J1, 1-J2, 1-J3, 1-J4, 1-K1, 1-K2, 1-K3, 1-K4, 1M-2X, 1B-1X, and 1B-2X are interest-only RCR Notes.

The A (low) (sf), BBB (high) (sf), BBB (sf), BBB (low) (sf), BB (sf), and B (sf) ratings reflect 2.80%, 2.53%, 2.00%, 1.63%, 1.25%, and 0.60% of credit enhancement, respectively. Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

CAS 2023-R02 is the 53rd benchmark transaction in the CAS series. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgage loans held in various Fannie Mae-guaranteed mortgage-backed securities (MBS). As of the Cut-Off Date, the Reference Pool consists of 64,306 greater-than-20-year term, fully amortizing, first-lien, fixed-rate mortgage loans underwritten to a full documentation standard, with original loan-to-value (LTV) ratios greater than 60% and less than or equal to 80%. The mortgage loans were estimated to be originated on or after May 2021 and were securitized by Fannie Mae between February 1, 2022, and September 30, 2022.

On the Closing Date, the trust will enter into a Collateral Administration Agreement (CAA) with Fannie Mae. Fannie Mae, as the credit protection buyer, will be required to make transfer amount payments. The trust is expected to use the aggregate proceeds realized from the sale of the Notes to purchase certain eligible investments to be held in a securities account. The eligible investments are restricted to highly rated, short-term investments. Cash flow from the Reference Pool will not be used to make any payments; instead, a portion of the eligible investments held in the securities account will be liquidated to make principal payments to the Noteholders and return amount, if any, to Fannie Mae upon the occurrence of certain specified credit events and modification events.

The coupon rates for the Notes are based on the SOFR. There are replacement provisions in place in the event that SOFR is no longer available; please see the Offering Memorandum (OM) for more details. DBRS Morningstar did not run interest rate stresses for this transaction, as the interest is not linked to the performance of the reference obligations. Instead, the trust will use the net investment earnings on the eligible investments together with Fannie Mae’s transfer amount payments to pay interest to the Noteholders.

In this transaction, approximately 21.9% of the loans were originated using property values determined by using Fannie Mae's Appraisal Waiver (AW) rather than a traditional full appraisal. Loans where the AW is offered generally have better credit attributes. Please see the OM for more details about the AW.

The calculation of principal payments to the Notes will be based on actual principal collected on the Reference Pool. The scheduled and unscheduled principal will be combined and only be allocated pro rata between the senior and nonsenior tranches if the performance tests are satisfied. For CAS 2023-R02, the minimum credit enhancement test is set to pass at the Closing Date. This allows rated classes to receive principal payments from the First Payment Date, provided the other two performance tests—delinquency test and cumulative net loss test—are met. Additionally, the nonsenior tranches will also be entitled to supplemental subordinate reduction amount if the offered reference tranche percentage increases above 5.50%.

The interest payments for these transactions are not linked to the performance of the reference obligations except to the extent that modification losses have occurred.

The Notes will be scheduled to mature on the payment date in January 2043, but will be subject to mandatory redemption prior to the scheduled maturity date upon the termination of the CAA.

The administrator and trustor of the transaction will be Fannie Mae. Computershare Trust Company, N.A. will act as the Indenture Trustee, Exchange Administrator, Custodian and Investment Agent. U.S. Bank National Association (rated AA (high) with a Stable trend and R-1 (high) with a Stable trend by DBRS Morningstar) will act as the Delaware Trustee.

The Reference Pool consists of approximately 0.7% of loans originated under the Home Ready® program. HomeReady® is Fannie Mae’s affordable mortgage product designed to expand the availability of mortgage financing to creditworthy low- to moderate-income borrowers.

If a reference obligation is refinanced under the High LTV Refinance Program, then the resulting refinanced reference obligation may be included in the Reference Pool as a replacement of the original reference obligation. The High LTV Refinance Program provides refinance opportunities to borrowers with existing Fannie Mae mortgages who are current in their mortgage payments but whose LTV ratios exceed the maximum permitted for standard refinance products. The refinancing and replacement of a reference obligation under this program will not constitute a credit event.

The transaction assumptions consider DBRS Morningstar's baseline macroeconomic scenarios for rated sovereign economies, available in its commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns: December 2022 Update,” dated December 21, 2022. 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:
-- Seller (or lender)/servicer approval process and quality control platform.
-- Well-diversified reference pool.
-- High-quality credit and loan attributes.
-- Strong alignment of interest.
-- Extensive performance history.

The transaction also includes the following challenges:
-- Representation and warranties framework.
-- Limited third-party due diligence.
-- Counterparty exposure.

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

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

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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