Press Release

DBRS Morningstar Finalizes Provisional Ratings on CHNGE Mortgage Trust 2023-3

June 23, 2023

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Mortgage Pass-Through Certificates, Series 2023-3 (the Certificates) issued by CHNGE Mortgage Trust 2023-3 (CHNGE 2023-3 or the Trust):

-- $251.3 million Class A-1 at AAA (sf)
-- $22.6 million Class A-2 at AA (sf)
-- $15.2 million Class A-3 at A (high) (sf)
-- $289.1 million Class A-4 at A (high) (sf)
-- $25.7 million Class M-1 at BBB (sf)
-- $8.6 million Class B-1 at BB (sf)
-- $6.7 million Class B-2 at B (high) (sf)

Class A-4 is an exchangeable certificate. This class can be exchanged for combinations of the initial exchangeable certificates as specified in the offering documents.

The AAA (sf) rating on the Class A-1 Certificates reflects 27.15% of credit enhancement provided by subordinated certificates. The AA (sf), A (high) (sf), BBB (sf), BB (sf), and B (high) (sf) ratings reflect 20.60%, 16.20%, 8.75%, 6.25%, and 4.30% of credit enhancement, respectively.

Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.

This is a securitization of a portfolio of fixed- and adjustable-rate expanded prime first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 732 mortgage loans with a total principal balance of $344,999,323 as of the Cut-Off Date (June 1, 2023).

CHNGE 2023-3 represents the eighth securitization issued by the Sponsor, Change Lending, LLC (Change), entirely consisting of loans from its Community Mortgage program (or a mix of Community and E-Z Prime programs), and Change’s ninth securitization overall. All of the loans in the pool were originated by Change, which is certified by the U.S. Department of the Treasury as a Community Development Financial Institution (CDFI). As a CDFI, Change is required to lend at least 60% of its production to its target markets, which include African Americans, Hispanics, Low-Income individuals, and certain Low-Income communities (as disclosed by Change). In addition to the above-mentioned transactions, DBRS Morningstar has rated other transactions mostly comprising, as well as in lesser amounts of, Change- and other CDFI-originated mortgage loans.

While loans originated by a CDFI are exempt from the Consumer Financial Protection Bureau’s Qualified Mortgage (QM) and Ability-to-Repay rules, the mortgages included in this pool were made to generally creditworthy borrowers with near-prime credit scores, low loan-to-value ratios, and robust reserves.

The loans in the pool were underwritten through Change's Community Mortgage program, which is considered weaker than other origination programs because income documentation verification is not required (prior transactions also included small amounts from the E-Z Prime program, which also does not require income documentation verification). Generally, underwriting practices of these programs focus on borrower credit, borrower equity contribution, housing payment history, and liquid reserves relative to monthly mortgage payments.

Although post-2008 crisis historical performance is still relatively limited on these products compared with long-standing sectors such as prime securitizations, DBRS Morningstar notes the increasing number of rated transactions backed by CDFI-originated mortgage loans, and their performance history. For these transactions, delinquencies have so far remained acceptable (with no significant/material liquidations or losses to date), while prepayments have also been acceptable. These rated transactions show general performance trends in line with non-QM transactions of similar vintages. DBRS Morningstar considered this while determining the expected losses for the loans in its analysis.

On or after the earlier of (1) the distribution date occurring in June 2026 and (2) the date on which the aggregate stated principal balance of the loans falls to 30% or less of the Cut-Off Date balance, at its option, the Depositor may redeem all of the outstanding certificates at the redemption price (par plus interest). Such optional redemption may be followed by a qualified liquidation, which requires (1) a complete liquidation of assets within the Trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 or more days delinquent (not related to a Coronavirus Disease (COVID-19) forbearance) under the Mortgage Bankers Association method at par plus interest, provided that such purchases in aggregate do not exceed 7.5% of the total principal balance as of the Cut-Off Date.

Change is the Servicer for the transaction. NewRez LLC, doing business as Shellpoint Mortgage Servicing (98.3%), and LoanCare, LLC (1.7%) are the Subservicers. The Servicer will fund advances of delinquent principal and interest (P&I) on any mortgage until such loan becomes 90 days delinquent, contingent upon recoverability determination. The Servicer is also obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties.

This 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 (a 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 tranches are paid in full. This structure is similar to that of CHNGE 2023-2, CHNGE 2022-NQM1, and other recent non-QM transactions. The initial six Change core shelf transactions used pure sequential payment structures with a single senior class.

Of note, the Class A-1, A-2, and A-3 fixed rates step up by 100 basis points after the payment date in June 2027, and interest and principal otherwise payable to Class B-3 as accrued and unpaid interest may also be used to pay related Cap Carryover Amounts. Furthermore, excess spread can be used to cover realized losses and prior period bond writedown amounts first, before being allocated to unpaid Cap Carryover Amounts to Classes A-1, A-2, and A-3.

Classes A-1, A-2, and A-3 may be exchanged for all or a portion of Class A-4 (or vice versa) as detailed in the offering documents. In such cases, Class A-4 will receive a proportionate share of interest and principal funds, and/or allocations of writedowns/write-ups, otherwise allocable to Classes A-1, A-2, and A-3, as specified by the offering documents.

Under the U.S. Risk Retention Rules, CDFI loans fall within the definition of “community-focused residential mortgages.” A securitization transaction containing only community-focused residential mortgages is exempt under the U.S. Risk Retention Rules and accordingly, the Sponsor will not be required to retain any credit risk under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Notwithstanding the exemption, Change has elected to initially retain the Class B-3, A-IO-S, and XS Certificates.

The ratings reflect transactional strengths that include the following:
-- Robust loan attributes and pool composition,
-- Satisfactory third-party due-diligence review, and
-- 100% current loans.

The transaction also includes the following challenges:
-- CDFI no-ratio loans,
-- Representations and warranties framework,
-- Three-month advances of delinquent P&I, and
-- Servicer’s’ financial capability.

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

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 (May 17, 2022).

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;

Other methodologies referenced in this transaction are listed at the end of this press release.

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:

The rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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:

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023),
-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023),
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
-- Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
-- Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),

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