DBRS Morningstar Finalizes Provisional Ratings on PRPM 2023-NQM1 Trust

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Mortgage Pass-Through Certificates, Series 2023-NQM1 (the Certificates) issued by PRPM 2023-NQM1 Trust (PRPM 2023-NQM1):

-- $149.0 million Class A-1 at AAA (sf)
-- $25.5 million Class A-2 at AA (sf)
-- $32.8 million Class A-3 at A (sf)
-- $19.0 million Class M-1 at BBB (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 certificates reflects 44.40% of credit enhancement provided by subordinate certificates. The AA (sf), A (sf), and BBB (sf) ratings reflect 34.90%, 22.65%, and 15.55% of credit enhancement, respectively.

This is a securitization of a portfolio of fixed- and adjustable-rate expanded prime and nonprime first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 736 mortgage loans with a total principal balance of $268,017,849 as of the Cut-Off Date (December 31, 2022).

PRPM 2023-NQM1 represents the second securitization issued from the PRPM NQM shelf, which is backed by both non-qualified mortgages (non-QM) and business-purpose investment property loans underwritten using debt service coverage ratios (DSCRs). PRP-LB 2023-NQM1, LLC, a fund owned by the aggregator, Balbec Capital LP & PRP Advisors, LLC (PRP), serves as the Sponsor of this transaction.

A&D Mortgage LLC (15.8%) is the largest originator for the mortgage pool. The remaining originators each comprise less than 15.0% of the mortgage loans. Fay Servicing, LLC (52.0%), Servis One, Inc. doing business as (dba) BSI Financial Services (32.8%), and NewRez LLC dba Shellpoint Mortgage Servicing (15.2%) are the Servicers of the loans in this transaction. PRP acts as the Servicing Administrator. U.S. Bank Trust Company, National Association (rated AA (high) with a Stable trend by DBRS Morningstar) will act as the Trustee and Securities Administrator. U.S. Bank National Association will act as the Custodian.

For 68.0% of the pool, the mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile, and the DSCR, where applicable. In addition, 4.6% of the pool comprises investment property loans underwritten using debt-to-income ratios. Because these loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s (CFPB) Ability-to-Repay (ATR) rules and TILA/RESPA Integrated Disclosure rule.

The remaining mortgage loans in the pool (27.3%) were originated to satisfy the CFPB ATR rules but were made to borrowers who generally do not qualify for agency, government, or private-label nonagency prime jumbo products for various reasons. In accordance with the QM/ATR rules, these loans are designated as non-QM.

The Depositor, a majority-owned affiliate of the Sponsor, will retain the Class B-3 and XS Certificates, representing an eligible horizontal interest of at least 5% of the aggregate fair value of the Certificates to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure.

On or after the earlier of (1) the distribution date in January 2026 or (2) the date when the aggregate unpaid principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Depositor, at its option, may redeem all of the outstanding Certificates at a price equal to the class balances of the related Certificates plus accrued and unpaid interest, including any Cap Carryover Amounts, any postclosing deferred amounts, and other fees, expenses, and indemnification and reimbursement amounts described in the transaction documents (Optional Redemption). An Optional Redemption will be followed by a qualified liquidation.

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 60 or more days delinquent under the Mortgage Bankers Association method at the Repurchase Price (par plus interest), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

For this transaction, the Servicers will not fund advances of delinquent principal and interest (P&I) on any mortgage. However, the Servicers are obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties (servicing advances).

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior classes (Classes A-1, A-2, and A-3) subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Trigger Event). After a Trigger Event, principal proceeds can be used to cover interest shortfalls on Class A-1 and then Class A-2 before being applied sequentially to amortize the balances of the certificates (IIPP). For all other classes, principal proceeds can be used to cover interest shortfalls after the more senior classes are paid in full (IPIP).

Excess spread can be used to cover realized losses before being allocated to unpaid Cap Carryover Amounts due to Classes A-1, A-2, and A-3. Interest and principal otherwise payable to Class B-3 as accrued and unpaid interest may also be used to pay Cap Carryover Amounts. For this transaction, the Class A-1, A-2, and A-3 fixed rates step up by 100 basis points on and after the payment date in February 2027.

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, 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:

-- Robust pool composition,
-- Certain loan attributes,
-- Improved underwriting standards,
-- Satisfactory third-party due-diligence review, and
-- Compliance with the ATR rules.

The transaction also includes the following challenges:

-- Investor DSCR loans;
-- Nonprime, non-QM, and investor loans;
-- No servicer advances of delinquent P&I; and
-- Representations and warranties framework.

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 factor(s) 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/384482.

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/assessing-us-rmbs-pools-under-the-ability-to-repay-rules

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions

-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
https://www.dbrsmorningstar.com/research/366613/third-party-due-diligence-criteria-for-us-rmbs-transactions

-- Representations and Warranties Criteria for U.S. RMBS Transactions (April 22, 2020),
https://www.dbrsmorningstar.com/research/359902/representations-and-warranties-criteria-for-us-rmbs-transactions

-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance

-- Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
https://www.dbrsmorningstar.com/research/405664/operational-risk-assessment-for-us-rmbs-originators

-- Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),
https://www.dbrsmorningstar.com/research/405665/operational-risk-assessment-for-us-rmbs-servicers

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