DBRS Morningstar Finalizes Provisional Credit Ratings on Point Securitization Trust 2023-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional credit ratings on the following Option-Backed Notes issued by Point Securitization Trust 2023-1:

-- $117.2 million Class A-1 at A (sf)
-- $22.2 million Class A-2 at BBB (low) (sf)

The A (sf) credit rating reflects credit enhancement of 42.9% for Class A-1, and the BBB (low) (sf) credit rating reflects credit enhancement of 32.1% for Class A-2.

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

Home equity investments (HEIs) allow homeowners access to the equity in their homes without having to sell their homes or make monthly mortgage payments. HEIs provide homeowners with an alternative to borrowing and are available to homeowners of any age (unlike reverse mortgage loans, for example, for which there is often a minimum age requirement). A homeowner receives an upfront cash payment (an Advance or an Investment Amount) in exchange for giving an Investor (i.e., an Originator) a stake in their property. The homeowner retains sole right of occupancy of the property and pays all upkeep and expenses during the term of the HEI, but the Originator participates in any increase, or decrease, in the value of the property.

Like reverse mortgage loans, the HEI underwriting approach is asset-based, meaning there is greater emphasis placed on the value of the underlying property than on the credit quality of the homeowner. The property value is the main focus for predicting repayment because it is the primary source of funds to satisfy the obligation. HEIs are nonrecourse; a homeowner is not required to provide additional funds when the HEI repayment amount exceeds the remaining equity value in the property (after accounting for any other obligations such as senior liens, if applicable). Therefore, repayment of the Advance and any Originator return is primarily subject to the amount of appreciation/depreciation on the property.

As of the cut-off date, 174 contracts in the transaction are first-lien contracts, representing roughly $21.98 million in current intrinsic value; 1,235 are second-lien contracts, representing roughly $162.23 million in current intrinsic value; and 168 are third-lien contracts, representing roughly $21.21 million in current intrinsic value.

Of the pool, 10.72% of the contracts are first lien and have a weighted-average HEI percentage of 56.86%, 79.12% are second-lien contracts and have a weighted-average HEI percentage of 54.61%, and the remaining 10.17% of the pool are third-lien contracts with a weighted-average HEI of 56.74%. This brings the entire transaction's weighted-average HEI percentage to 55.07%. To better understand the contract math, please refer to the Presale Report under the Contract Mechanics—Worked Example section. The current unadjusted loan-to-value ratio of the pool is 36.15% (i.e., of senior liens ahead of the contracts). At cutoff the pool had a weighted-average Option-to-Value of 18.48%, and a current weighted-average Loan-plus-Option-to-Value of 52.80%.

The transaction uses a sequential structure. For cash distributions that are paid prior to the occurrence of a Credit Event, payments are first made to the Interest Amounts and any Interest Carryover on Class A-1 and then the Interest Amounts and any Interest Carryover on Class A-2. Payments are then made to the Note Amount of Class A-1 until such notes are paid off. With respect to Class A-2 Notes, payments are then made to Note Amount until Note Amount of the Class A-2 Notes are paid off with an amount up to the amount of Net Sale Proceeds (if any) that was included in the total Available Funds on such Payment Date.

For cash distributions that are paid post the occurrence of a Credit Event, payments are first made to the Interest Amounts and any Interest Carryover on Class A-1 Notes. In the event that the Class A-1 Notes have not been redeemed or paid in full, on or after the Expected Redemption Date, the Accrual Amount would be paid first to Class A-1 Notes until it's paid off and then as Additional Accrued Amounts to Class A-1 Notes, until such amounts have been reduced to zero. If the Class A-1 Notes have been redeemed or paid in full prior to the Redemption Date, payments are made to the Interest Amounts and any unpaid Interest Carryover on Class A-2 Notes.

With respect to Class A-1 Notes, payments are first made to the Note Amount until such amounts are reduced to zero and then to the Additional Accrued Amounts including any unpaid Additional Accrued Amounts until such amounts are reduced to zero on Class A-1 Notes. Class A-2 Notes are then paid the Note Amount until it's paid off and the Additional Accrued Amounts including any unpaid Additional Accrued Amounts until it's reduced to zero.

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 Amount, Interest Payment Amount, and Interest Carryover Amount.

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 credit ratings is Rating and Monitoring U.S. Reverse Mortgage Securitizations (Appendix 3: Home Equity Investments Methodology) (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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit 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 credit 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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New York, NY 10005 USA
Tel. +1 212 806-3277

The credit 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 (August 31, 2023),
https://www.dbrsmorningstar.com/research/420106

-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023),
https://www.dbrsmorningstar.com/research/420107

-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023)
https://www.dbrsmorningstar.com/research/420333

-- 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].