DBRS Morningstar Finalizes Provisional Ratings on Freddie Mac STACR REMIC Trust 2023-DNA1

DBRS, Inc. (DBRS Morningstar) finalized the following provisional ratings on the Structured Agency Credit Risk (STACR) REMIC 2023-DNA1 Notes (the Notes) to be issued by Freddie Mac STACR REMIC Trust 2023-DNA1 (STACR 2023-DNA1):

-- $282.0 million Class M-1A at BBB (high) (sf)
-- $99.0 million Class M-1B at BBB (sf)
-- $74.0 million Class M-2A at BB (high) (sf)
-- $74.0 million Class M-2B at BB (sf)
-- $41.0 million Class B-1A at B (high) (sf)
-- $41.0 million Class B-1B at B (low) (sf)
-- $148.0 million Class M-2 at BB (sf)
-- $148.0 million Class M-2R at BB (sf)
-- $148.0 million Class M-2S at BB (sf)
-- $148.0 million Class M-2T at BB (sf)
-- $148.0 million Class M-2U at BB (sf)
-- $148.0 million Class M-2I at BB (sf)
-- $74.0 million Class M-2AR at BB (high) (sf)
-- $74.0 million Class M-2AS at BB (high) (sf)
-- $74.0 million Class M-2AT at BB (high) (sf)
-- $74.0 million Class M-2AU at BB (high) (sf)
-- $74.0 million Class M-2AI at BB (high) (sf)
-- $74.0 million Class M-2BR at BB (sf)
-- $74.0 million Class M-2BS at BB (sf)
-- $74.0 million Class M-2BT at BB (sf)
-- $74.0 million Class M-2BU at BB (sf)
-- $74.0 million Class M-2BI at BB (sf)
-- $74.0 million Class M-2RB at BB (sf)
-- $74.0 million Class M-2SB at BB (sf)
-- $74.0 million Class M-2TB at BB (sf)
-- $74.0 million Class M-2UB at BB (sf)
-- $82.0 million Class B-1 at B (low) (sf)
-- $82.0 million Class B-1R at B (low) (sf)
-- $82.0 million Class B-1S at B (low) (sf)
-- $82.0 million Class B-1T at B (low) (sf)
-- $82.0 million Class B-1U at B (low) (sf)
-- $82.0 million Class B-1I at B (low) (sf)
-- $41.0 million Class B-1AR at B (high) (sf)
-- $41.0 million Class B-1AI at B (high) (sf)

Classes M-2, M-2R, M-2S, M-2T, M-2U, M-2I, M-2AR, M-2AS, M-2AT, M-2AU, M-2AI, M-2BR, M-2BS, M-2BT, M-2BU, M-2BI, M-2RB, M-2SB, M-2TB, M-2UB, B-1, B-1R, B-1S, B-1T, B-1U, B-1I, B-1AR, and B-1AI are Modifiable and Combinable STACR Notes (MACR Notes). Classes M-2I, M-2AI, M-2BI, B-1I, and B-1AI are interest-only MACR Notes.

The BBB (high) (sf), BBB (sf), BB (high) (sf), BB (sf), B (high) (sf), and B (low) (sf) ratings reflect 3.250%, 2.550%, 2.025%, 1.500%, 1.125%, and 0.750% of credit enhancement, respectively. Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

STACR 2023-DNA1 is the 37th transaction in the STACR DNA 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 Freddie Mac-guaranteed mortgage-backed securities (MBS).

As of the Cut-Off Date, the Reference Pool consists of 47,367 greater-than-20-year fully amortizing first-lien fixed-rate mortgage loans underwritten to a full documentation standard, with original loan-to-value ratios (LTV) greater than 60% and less than or equal to 80%. The mortgage loans were estimated to be originated on or after July 1, 2021 and were securitized by Freddie Mac between July 1, 2022, and July 31, 2022.

On the Closing Date, the trust will enter into a Collateral Administration Agreement (CAA) with Freddie Mac. Freddie Mac, 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 custodian 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 custodian account will be liquidated to make principal payments to the Noteholders and return amounts, if any, to Freddie Mac upon the occurrence of certain specified credit events and modification events.

The coupon rates for the Notes are based on the Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available, please see the Private Placement Memorandum (PPM) 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 Freddie Mac’s transfer amount payments to pay interest to the Noteholders.

In this transaction, approximately 20.7% of the loans were originated using property values determined by using Freddie Mac's automated collateral evaluation (ACE) assessment rather than a traditional full appraisal. Loans where the property values were determined by using ACE assessments generally have better credit score and lower original LTV. Please see the PPM for more details about the ACE assessment.

The calculation of principal payments to the Notes will be based on actual principal collected on the Reference Pool. For STACR DNA transactions issued after and including STACR 2018-DNA2, the scheduled and unscheduled principal will be combined and allocated pro rata between the senior and nonsenior tranches only if certain performance tests are satisfied. For transactions previous to this, the scheduled principal was allocated pro rata between the senior and nonsenior (mezzanine and subordinate) tranches, regardless of deal performance, while the unscheduled principal was allocated pro rata subject to certain performance tests being met.

The minimum credit enhancement test—one of the three performance tests—for STACR 2023-DNA1 is set to pass at the Closing Date. Additionally, the nonsenior tranches are also entitled to supplemental subordinate reduction amount if the offered reference tranche percentage increases above 5.50%.

The Notes are scheduled to mature on the payment date in March 2043, but are also subject to a mandatory redemption prior to the scheduled maturity date in the case of a termination of the CAA.

The Sponsor of the transaction is Freddie Mac. U.S. Bank Trust Company, National Association will act as the Indenture Trustee and Exchange Administrator. The Bank of New York Mellon (rated AA (high) with a Stable trend and R-1 (high) with a Stable trend by DBRS Morningstar) will act as the Custodian. Wilmington Trust, National Association (rated AA (low) with a Stable trend and R-1 (middle) with a Stable trend by DBRS Morningstar) will act as the Owner Trustee.

The Reference Pool consists of approximately 0.7% of loans originated under the Home Possible® program. Home Possible® is Freddie Mac’s affordable mortgage products designed to expand the availability of mortgage financing to creditworthy low- to moderate-income borrowers. In addition, no loans were originated under Freddie Mac Refi PossibleSM, which offers low- to moderate- income borrowers options to refinance their current loans and approximately 0.01% of loans were originated under Freddie Mac HFA Advantage®, a conventional mortgage product designed for borrowers who qualify for HFA homeownership programs.

If a reference obligation is refinanced under the Enhanced Relief Refinance Program, then the resulting refinanced reference obligation may be included in the Reference Pool as a replacement of the original reference obligation. The Enhanced Relief Refinance Program provides refinance opportunities to borrowers with existing Freddie Mac mortgages who are current in their mortgage payments but whose LTVs 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.

For this transaction, if a loan becomes delinquent and the related Servicer reports that such loan is in
disaster forbearance before the sixth reporting period from the landfall of the hurricane, Freddie Mac will remove the loan from the pool to the extent that the related mortgaged property is located in a Federal Emergency Management Agency (FEMA) major disaster area and in which FEMA had authorized individual assistance to homeowners in such area as a result of such hurricane that affects such related mortgaged property prior to the Closing Date.

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 (March 3, 2023; 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/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].