Morningstar DBRS Assigns Credit Ratings to Finance of America Structured Securities Trust 2024-S1

DBRS, Inc. (Morningstar DBRS) assigned ratings to the Mortgage-Backed Notes, Series 2024-S1 issued by Finance of America Structured Securities Trust, Series 2024-S1, as follows:

-- $100.0 million Class AV at AAA (sf)
-- $301.5 million Class A1 at AAA (sf)
-- $77.3 million Class A2 at AAA (sf)
-- $54.3 million Class A3 at AAA (sf)
-- $19.2 million Class A4 at AA (low) (sf)

The AAA (sf) credit rating reflects 110.1% of cumulative advance rate, and the AA (low) (sf) rating reflects 114.1% of cumulative advance rates.

Other than the specified classes above, Morningstar DBRS 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 December 31, 2023, cut-off date, the collateral consists of approximately $485.17 million in current unpaid principal balance (UPB) from 3,565 nonrecourse reverse mortgage loans secured by first liens on single-family residential properties, condominiums, multifamily (two- to four-family) properties, townhomes, and planned unit developments. Most of the loans in the asset pool were originated between 2019 and 2023.

As of the cut-off date, 3,078 loans in the transaction are line-of-credit loans, representing roughly $59.88 million in UPB, and 487 are lump sum loans, representing roughly $425.28 million in UPB. Of the pool, 87.34% of the loans are fixed rate and have a weighted-average (WA) mortgage interest rate of 7.63%. The remaining 12.66% of the pool is floating rate and is indexed to one-year constant maturity Treasury (CMT) with a WA mortgage interest rate of 11.251%, three-month Libor with a WA mortgage interest rate of 10.16%, and one-year Libor with a WA mortgage interest rate of 6.39%. This brings the entire transaction's WA to 8.05%. The current unadjusted WA loan-to-value ratio (LTV) of the pool is 42.60%.

The transaction uses a structure in which cash distributions are first made to reduce the accrual amount on the Class AV, Class A1, Class A2, Class A3, and Class A4 Notes followed by reducing the note principal amounts on the Class AV, Class A1, Class A2, and Class A3 Notes (together, the Class A Notes) on a pro rata basis until such notes are paid off.

The pro rata distribution of cash flows between the senior notes changes to sequential if the Home Price Percentage (as measured using the S&P Global Ratings' (S&P) 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 HPD trigger would then persist. Said differently, any failure of the test in periods 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 February 2029.

The Class A4 Note will not be entitled to any payments of principal or Additional Accrual Amounts until the Class AV, Class A1, Class A2, and Class A3 Notes have been paid in full.

Morningstar DBRS’ 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 Certificates are the related Accrual Amount and Note Principal Balance.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, ratings on the Notes do not address Additional Accrual Amounts based on its position in the cash flow waterfall.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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 Morningstar DBRS 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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 (July 17, 2023; https://dbrs.morningstar.com/research/417277).

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

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.

Morningstar DBRS 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 info-DBRS@morningstar.com.

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://dbrs.morningstar.com/about/methodologies.

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023), https://dbrs.morningstar.com/research/415687

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://dbrs.morningstar.com/research/420106

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

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

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.