Morningstar DBRS Assigns Provisional Credit Ratings to NYMT Loan Trust Series 2024-BPL2

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Mortgage-Backed Notes, Series 2024-BPL2 (the Notes) to be issued by NYMT Loan Trust Series 2024-BPL2 (NYMT 2024-BPL2 or the Issuer) as follows:

-- $186.3 million Class A1 at A (low) (sf)
-- $18.1 million Class A2 at BBB (low) (sf)
-- $17.1 million Class M at BB (low) (sf)

The A (low) (sf) credit rating reflects 25.50% of credit enhancement provided by the subordinated notes and overcollateralization. The BBB (low) (sf) and BB (low) (sf) credit ratings reflect 18.25% and 11.40% of credit enhancement, respectively.

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

This transaction is a securitization of a two-year revolving portfolio of residential transition loans (RTLs) funded by the issuance of the Notes. As of the Initial Cut-Off Date, the Notes are backed by:
-- 502 mortgage loans with a total principal balance of approximately $208,996,014
-- Approximately $41,003,986 in the Accumulation Account
-- Approximately $1,251,184 in the Interest Reserve Account.

Additional RTLs may be added to the revolving portfolio on future additional transfer dates, subject to the transaction's eligibility criteria.

NYMT 2024-BPL2 represents the fourth RTL securitization issued by the Sponsor and Trust Manager, New York Mortgage Trust, Inc. (NYMT). Formed in 2003, NYMT is an internally managed public real estate investment trust, in the business of acquiring, investing, financing, and managing primarily mortgage-related single-family and multifamily residential assets, including joint venture equity investments in multifamily apartment communities.

The revolving portfolio generally consists of first-lien, fixed-rate, interest-only (IO) balloon RTL with original terms to maturity of six to 24 months. The loans may also include extension options, which may lengthen maturities beyond the original terms. The characteristics of the revolving pool will be subject to eligibility criteria specified in the transaction documents and include:
-- A minimum non-zero, weighted-average (NZ WA) FICO score of 735.
-- A maximum NZ WA Loan-to-Cost ratio of 80.0%.
-- A maximum NZ WA As Repaired Loan-to-Value ratio of 70.0%.

RTL Features
RTLs, also known as fix-and-flip mortgage loans, are short-term bridge, construction, or renovation loans designed to help real estate investors purchase and renovate residential or small balance commercial properties (the latter is limited to 5.0% of the revolving portfolio), generally within 12 to 36 months. RTLs are similar to traditional mortgages in many aspects but may differ significantly in terms of initial property condition, construction draws, and the timing and incentives by which borrowers repay principal. For traditional residential mortgages, borrowers are generally incentivized to pay principal monthly, so they can occupy the properties while building equity in their homes. In the RTL space, borrowers repay their entire loan amount when they (1) sell the property with the goal to generate a profit or (2) refinance to a term loan and rent out the property to earn income.

In general, RTLs are short-term IO balloon loans with the full amount of principal (balloon payment) due at maturity. The repayment of an RTL is mainly based on the ability to sell the related mortgaged property or to convert it into a rental property. In addition, many RTL lenders offer extension options, which provide additional time for borrowers to repay their mortgage beyond the original maturity date. For the loans in this transaction, such extensions may be granted, subject to certain conditions, at the direction of the related Asset Manager, Servicer, or Trust Manager.

In the NYMT 2024-BPL2 revolving portfolio, RTLs may be:

1. Fully funded:
   -- With no obligation of further advances to the borrower, or
   -- With a portion of the loan proceeds allocated to a rehabilitation (rehab) escrow account for future disbursement to fund construction draw requests upon the satisfaction of certain conditions.
2. Partially funded:
   -- With a commitment to fund construction draw requests upon the satisfaction of certain conditions.

After completing certain construction/repairs using their own funds, the borrower usually seeks reimbursement by making draw requests. Generally, construction draws are disbursed only upon the completion of approved construction/repairs and after a satisfactory construction progress inspection. Based on the NYMT 2024-BPL2 eligibility criteria, unfunded commitments are limited to 30.0% of the portfolio by the assets of the issuer, which includes (1) the unpaid principal balance (UPB) and (2) amounts in the Accumulation Account and Payment Account.

Cash Flow Structure and Draw Funding
The transaction employs a sequential-pay cash flow structure with bullet pay features to Class A2 and M Notes on their respective mandatory redemption dates. During the reinvestment period, the Notes will generally be IO. During and after the reinvestment period, principal and interest collections will be used to pay interest to the Notes, sequentially. After the reinvestment period, available funds will be applied as principal to pay down Class A1, until reduced to zero. Class A2 and M are not entitled to any payments of principal until the optional redemption date, the related note mandatory redemption date, or upon the occurrence of an Event of Default (EOD). Prior to any related redemption date or an EOD, any available funds remaining after Class A1 is paid in full will be deposited into the Redemption Account. If the Issuer does not redeem the Notes by the payment date in November 2026, the Class A1 and A2 fixed rates will step-up by 1.000%.

In contrast to certain other Morningstar DBRS-rated RTL securitizations which incorporated REMIC structures, this transaction incorporates a debt for tax structure. In this transaction, the interest rates on the Notes are set at fixed rates, which are not capped by the net WA coupon (Net WAC) or available funds. This feature, along with the bullet feature, causes the structure to have elevated subordination levels relative to a comparable structure with fixed-capped interest rates and no bullet feature because interest entitlements are generally higher, and more principal may be needed to cover interest shortfalls. Morningstar DBRS considered such nuanced features and incorporated them in its cash flow analysis. The cash flow structure is discussed in more detail in the Cash Flow Structure and Features section of the related report.

There will be no advancing of delinquent (DQ) principal or interest on any mortgage by the Servicers or any other party to the transaction. However, the Trust Manager, Asset Managers, or Servicers are obligated to fund Servicing Advances which include taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties. Such Servicing Advances will be reimbursable from collections and other recoveries prior to any payments on the Notes.

The related Asset Manager or Servicer will also satisfy Rehabilitation Disbursement Requests, which include borrower-requested draws for approved construction, repairs, restoration, and protection of the property. The related Asset Manager or Servicer will satisfy such Rehabilitation Disbursement Requests using (1) collections on deposit in any related custodial account, (2) its own funds, or (3) funds advanced by the Trust Manager. The Trust Manager may use amounts on deposit in the Accumulation Account to reimburse the related Asset Manager or Servicer for any such Construction Advance, or to fund or reimburse itself for any such Construction Advance Shortfall Amounts.

The Accumulation Account is replenished from the transaction cash flow waterfall, after payment of interest to the Notes, to maintain a minimum required funding balance. During the reinvestment period, amounts held in the Accumulation Account, along with the mortgage collateral, must be sufficient to maintain a maximum effective advance rate of approximately 88.60%, which ensures a minimum level of overcollateralization for the bonds until the amortization period begins. In addition, the transaction incorporates a Class A Minimum Credit Enhancement Test during the reinvestment period, which if breached, redirects available funds to pay down Classes A1 and A2, sequentially, prior to replenishing the Accumulation Account, to maintain a minimum CE.

The transaction also employs the Expense Reserve Account, which will be available to cover fees and expenses. The Expense Reserve Account is replenished from the transaction cash flow waterfall, before payment of interest to the Notes, to maintain a minimum reserve balance.

In contrast to other Morningstar DBRS-rated RTL securitizations, NYMT 2024-BPL2 also incorporates an Interest Reserve Account that can cover one month of interest to the Notes. The Interest Reserve Account is replenished from the transaction cash flow waterfall, after payment of interest to the Notes and before payment of amounts to the Accumulation Account, to maintain a minimum reserve balance. Such feature helps to prevent disruptions of interest payments to the Notes.

Historically, NYMT RTL acquisitions have generated robust mortgage repayments, which have been able to cover unfunded commitments in securitizations. In the RTL space, because of the lack of amortization and the short term nature of the loans, mortgage repayments (paydowns and payoffs) tend to occur closer to or at the related maturity dates when compared with traditional residential mortgages. Morningstar DBRS considers paydowns to be unscheduled voluntary balance reductions (generally repayments in full) that occur prior to the maturity date of the loans, while payoffs are scheduled balance reductions that occur on the maturity or extended maturity date of the loans. In its cash flow analysis, Morningstar DBRS evaluated NYMT's historical mortgage repayments relative to draw commitments and incorporated several stress scenarios where paydowns may or may not sufficiently cover draw commitments. Please see the Cash Flow Analysis section of the related report for more details.

Other Transaction Features
Optional Redemption
On any date after the earlier of (1) the Payment Date following the termination of the Reinvestment Period or (2) the date on which the aggregate Note Amount falls to 25% or less of the initial Closing Date Note Amount, the Issuer, at its option, may purchase all of the outstanding Notes at the Redemption Price (par plus interest and fees).

Mandatory Redemption
On any Payment Date on or after the Class A1 Note Expected Redemption Date (October 2027), the Issuer will cause the redemption of the Class A2 Notes in whole from funds in the Redemption Account when the amounts in the Redemption Account become sufficient to pay off the Class A2 Note Amount and any accrued interest (Class A2 Note Mandatory Redemption).

On any Payment Date on or after the Class M Note Expected Redemption Date (February 2028), the Issuer will cause the redemption of the Class M Notes in whole from funds in the Redemption Account when the amounts in the Redemption Account become sufficient to pay off the Class M Note Amount and any accrued interest (Class M Note Mandatory Redemption).

Repurchase Option
The Sponsor will have the option to repurchase mortgage loans at the Repurchase Price (par plus interest and fees) if:
-- Amounts in the Accumulation Account are insufficient to fund the related mortgage loan draw requirements
-- Such mortgage loan becomes DQ or defaulted
-- Such mortgage loan is extended beyond 12 months from original maturity.

During the reinvestment period, if the Sponsor repurchases DQ, defaulted, or extended loans, this could potentially delay the natural occurrence of an early amortization event based on the DQ or default trigger. Morningstar DBRS' revolving structure analysis assumes the repayment of Notes is reliant on the amortization of an adverse pool regardless of whether it occurs early or not.

Sales of Mortgage Loans
The Issuer may sell a mortgage loan under the following circumstances:
-- The Sponsor is required to repurchase a loan because of a material breach, a diligence defect, or a material document defect.
-- The Sponsor elects to exercise its Repurchase Option.
-- An optional redemption occurs.
-- The Issuer sells a mortgage loan in an arm's length transaction at the Repurchase Price or sells a defaulted loan at fair market value (FMV).
-- The Issuer sells a mortgage loan to an affiliate at FMV but such price must be at least par plus interest.
Voluntary repurchases may not exceed 10.0% of the cumulative UPB of the mortgage loans (Repurchase Limit).

U.S. Credit Risk Retention
As the Sponsor, NYMT or one or more majority-owned affiliates will initially retain an eligible horizontal residual interest comprising at least 5% of the aggregate fair value of the securities (the Residual Interest Certificate) to satisfy the credit risk retention requirements.

The credit ratings reflect transactional strengths that include the following:
-- Robust pool composition defined by eligibility criteria.
-- Historical paydowns and payoffs.
-- Solid historical performance with favorable resolutions.
-- Structural enhancements.
-- Third-party due-diligence review framework.

The transaction also includes the following challenges:
-- Funding of future construction draws.
-- RTL loan characteristics.
-- Representations and warranties framework.
-- No advances of DQ interest.

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

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 Notes are the related Note Interest Payment Amount, and the Note Amount.

Morningstar DBRS' credit ratings on the Class A1 and Class A2 Notes also address the credit risk associated with the increased rate of interest applicable to the Class A1 and Class A2 Notes if the Class A1 and Class A2 Notes remain outstanding on the step-up date (November 2026) in accordance with the applicable transaction document(s).

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, AND 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), 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 RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (August 31, 2023), https://dbrs.morningstar.com/research/420108.

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

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

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

These are solicited credit ratings.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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

DBRS, Inc.
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The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023), https://dbrs.morningstar.com/research/413297
-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://dbrs.morningstar.com/research/420333
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://dbrs.morningstar.com/research/414076
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- 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

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