DBRS Morningstar Assigns Provisional Ratings to CFMT 2023-HB11, LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Asset-Backed Notes, Series 2023-1 to be issued by CFMT 2023-HB11, LLC:

-- $251.5 million Class A at AAA (sf)
-- $35.3 million Class M1 at AA (low) (sf)
-- $26.5 million Class M2 at A (low) (sf)
-- $25.2 million Class M3 at BBB (low) (sf)
-- $4.2 million Class M4 at BB (high) (sf)
-- $18.1 million Class M5 at BB (low) (sf)
-- $15.2 million Class M6 at B (sf)

The AAA (sf) rating reflects 30.3% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (high) (sf), BB (low) (sf), and B (sf) ratings reflect 20.5%, 13.1%, 6.2%, 5.0%, 0.0%, and -4.2% 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 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 Cut-Off Date (December 31, 2022), the collateral has approximately $360.7 million in unpaid principal balance from 1,428 nonperforming home equity conversion mortgage reverse mortgage loans and real estate owned properties 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 originally originated between 1993 and 2016. Of the total assets, 46 have a fixed interest rate (4.75% of the balance) with a 5.198% weighted-average coupon (WAC). The remaining 1,382 assets have a floating interest rate (95.25% of the balance) with a 5.994% WAC, bringing the entire collateral pool to a 5.956% WAC.

The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (the 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 have principal lockout terms insofar as they are not entitled to principal payments 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 (February 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 M6 Notes have not been redeemed or paid in full by the Mandatory Call Date, these notes will accrue Additional Accrued Amounts. DBRS Morningstar does not rate these Additional Accrued Amounts.

ENVIRONMENTAL, SOCIAL, AND 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 (May 17, 2022).

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

The principal methodology applicable to the ratings is Rating and Monitoring U.S. Reverse Mortgage Securitizations (November 23, 2022; https://www.dbrsmorningstar.com/research/405660).

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 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.

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

-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008
-- 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].