DBRS Morningstar Finalizes Provisional Ratings on Unison Trust 2023-2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Notes issued by Unison Trust 2023-2 (UNSN 2023-2 or the Transaction):

-- $91.8 million Class A at BBB (sf)
-- $21.6 million Class B at BB (low) (sf)

The BBB (sf) rating reflects credit enhancement of 54.7% for the Class A notes, and the BB (low) (sf) rating reflects credit enhancement of 44.0% for the Class B notes.

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 the homeowners 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 earns an investment return based on the future value of the property. Some HEI programs include a returns cap, but no caps exist in UNSN 2023-2.

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

As of the cut-off date, 46 contracts in the Transaction are first-lien contracts, representing roughly $3.81 million in current intrinsic value; 814 are second-lien contracts, representing roughly $72.04 million in current intrinsic value; 161 are third-lien contracts, representing roughly $17.25 million in current intrinsic value; and two are fourth-lien contracts, representing roughly $0.12 million in current intrinsic value.

Of the pool, 4.08% of the contracts by original investment amount are first lien and have a weighted-average (WA) original sensitivity ratio of 4.03, 77.28% are second-lien contracts and have a WA sensitivity ratio of 3.96, 18.50% of the pool are third-lien contracts with a WA sensitivity ratio of 4.00, and the remaining 0.13% of the pool are fourth-lien contracts and have a WA sensitivity ratio of 4.00. This brings the entire transaction's WA sensitivity ratio to 3.97. To better understand the impact and mechanics of sensitivity ratio, please see the example below, in the Contract Mechanics—Worked Example section in the related presale report. The current unadjusted loan-to-value ratio (LTV) of the pool is 40.42% (i.e., of senior liens ahead of the contracts). At cut-off, the pool had a WA original Option-to-Value of 15.50% and a WA original Loan-plus-Option-to-Value of 72.17%.

The Transaction uses a sequential structure in which cash distributions are first made to reduce the Interest Amount and Cap Carryover Amount on the Class A Notes. Payments are then made to the Note Amount of the Class A Notes until such notes reduced to zero. With respect to the Class B Notes, payments are first made to reduce the Interest Amount and Cap Carryover Amount as long as these payments don’t exceed the Class B Interest Payment Cap. Payments will not be made to the Class B Notes unless and until an Optional Redemption, Clean-Up Call, Mandatory Call Date, or Indenture Default. Upon an Optional Redemption, Clean-Up Call, Mandatory Call Date, or Indenture Default, payments are made to the aggregate Note Amount on the outstanding Notes.

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 Amount, and Cap Carryover Amount.

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. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 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.
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.

-- 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].