DBRS Morningstar Assigns Ratings to Finance of America Structured Securities Trust, 2023-S3

DBRS, Inc. (DBRS Morningstar) assigned ratings to the following Mortgage-Backed Notes, Series 2023-S3 (the Notes) issued by Finance of America Structured Securities Trust, Series 2023-S3:

-- $358.2 million Class A1 at AAA (sf)
-- $150.7 million Class A2 at AAA (sf)
-- $23.0 million Class A3 at AA (low) (sf)

The AAA (sf) rating reflects credit enhancement of 22.7% for Class A1 and -10.6% for Class A2. The AA (low) (sf) rating reflects credit enhancement of -15.6%.

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 a period of 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, 3,092 loans in the transaction are line-of-credit loans, representing roughly $130.97 million in unpaid principal balance (UPB), and 424 are lump sum loans, representing roughly $329.29 million in UPB. Of the pool, 71.54% of the loans are fixed rate and have a weighted-average mortgage interest rate of 8.03%. The remaining 28.46% of the pool is floating rate and is indexed to one-year constant maturity Treasury with a weighted-average mortgage interest rate of 10.77% and three-month Libor with a weighted-average mortgage interest rate of 10.29%. This brings the entire transaction's weighted average to 8.80%. The current unadjusted loan-to-value ratio of the pool is 40.52%.

The transaction uses a structure in which cash distributions are first made to reduce the note principal amounts on the Class A1, Class A2, and Class A3 (together, the Class A Notes) on a pro rata basis until such notes are paid off. With respect to the Class M1 and Class M2 Notes, payments are first made to reduce the note principal balance followed by payments to reduce the additional accrued amounts until paid in full.

The pro rata distribution of cash flows between the senior notes changes to sequential if the Home Price Percentage (as measured using Standard & Poor's CoreLogic Case-Shiller National Index) declines to lower than 62.50% of the value on the closing date, but it reverts to pro rata if the index rises above said threshold. The payment arrangement (pro rata or sequential) can vary up until the 47th payment period, but after the 47th period any breach of this Home Price Decline trigger would then persist. Said differently, any failure of the test in period 48 and beyond would remain in place, even if home prices recover above the threshold.

The notes are expected (but not required) to be paid in full, or redeemed by the issuer, on the mandatory redemption date in August 2028.

The Class M1 and Class M2 Notes will not be entitled to any payments of principal or Additional Accrual Amounts until the Class A Notes have been paid in full.

DBRS Morningstar’s credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Note Principal Balances inclusive of Accrual Amounts.

DBRS Morningstar’s credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. For example, in this transaction, DBRS Morningstar's ratings do not address the payment of any Additional Accrual Amounts on each rated note.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784 (July 4, 2023).

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 (July 17, 2023; https://www.dbrsmorningstar.com/research/417277).

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: https://www.dbrsmorningstar.com/research/384482.

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.

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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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 (June 9, 2023), https://www.dbrsmorningstar.com/research/415687

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

-- Operational Risk Assessment for U.S. RMBS Originators (July 17, 2023), https://www.dbrsmorningstar.com/research/417275

-- Operational Risk Assessment for U.S. RMBS Servicers (July 17, 2023), https://www.dbrsmorningstar.com/research/417276

-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://www.dbrsmorningstar.com/research/414076

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