Morningstar DBRS Finalizes Provisional Credit Ratings on CFMT 2024-HB14, LLC

DBRS, Inc. (Morningstar DBRS) finalized its provisional ratings on the following Asset-Backed Notes, Series 2024-2 issued by CFMT 2024-HB14, LLC:

-- $328.9 million Class A at AAA (sf)
-- $46.6 million Class M1 at AA (low) (sf)
-- $34.7 million Class M2 at A (low) (sf)
-- $34.8 million Class M3 at BBB (low) (sf)
-- $34.9 million Class M4 at BB (low) (sf)
-- $10.2 million Class M5 at B (high) (sf)
-- $12.2 million Class M6 at B (sf)

The AAA (sf) rating reflects 36.2% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), B (high) (sf), and B (sf) ratings reflect 27.2%, 20.5%, 13.7%, 7.0%, 5.0%, and 2.6% of credit enhancement, respectively.

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 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 (April 30, 2024), the collateral has approximately $515.9 million in unpaid principal balance (UPB) from 1,461 performing and nonperforming home equity conversion mortgage (HECM) reverse mortgage loans and real estate-owned (REO) properties secured by first liens typically on single-family residential properties, condominiums, multifamily (two to four - family) properties, manufactured homes, planned unit developments, and townhouses. All of the mortgage assets were originated between 2006 and 2015. Of the total assets, 1,144 have a fixed interest rate (79.7% of the balance), with a 5.3% weighted-average coupon (WAC). The remaining 317 assets have floating-rate interest (20.3% of the balance) with a 7.7% WAC, bringing the entire collateral pool to a 5.8% WAC.

As of the Cut-Off Date, the mortgage assets in this transaction are both performing and nonperforming (i.e., inactive) assets. There are 249 performing loans comprising 16.1% of the total UPB. As for the 1,212 nonperforming loans (NPLs), 648 are in a foreclosure process (54.5% of balance), 255 are in default (11.3%), 67 are in bankruptcy (4.5%), 94 are called due (4.6%), and the remaining 148 loans are in REO status (9.1%). However, all these assets are insured by the U.S. Department of Housing and Urban Development (HUD), and this insurance acts to mitigate losses compared with uninsured loans. Because the insurance supplements the home value, the industry metric for this collateral is not the loan-to-value ratio (LTV) but rather the weighted-average (WA) effective LTV adjusted for HUD insurance, which is 62.4% for these assets. The WA LTV is calculated by dividing the UPB by the maximum claim amount (MCA) plus the asset value.

Among the 249 performing loans, 230 loans, representing 92.8% of the performing loan UPB, are flagged to be strategically held and not assigned (the Strategically Held set), and the remaining 19 loans, representing 7.2% of the performing loan UPB, are flagged as curable impeded assignments.

The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (Class A notes) have been reduced to zero. This structure provides credit enhancement in the form of subordinate classes and reduces the effect of realized losses. These features increase the likelihood that holders of the most senior class of notes will receive regular distributions of interest and/or principal. All note classes have available fund caps.

Classes M1, M2, M3, M4, M5, M6, and M7 (together, the Class M Notes) have principal lockout terms insofar as they are not entitled to principal payments prior to a Redemption Date, unless an Acceleration Event or Auction Failure Event occurs. Available cash will be trapped until these dates, at which stage the notes will start to receive payments. Note that the Morningstar DBRS cash flow as it pertains to each note models the first payment being received after these dates for each of the respective notes; hence, at the time of issuance, these rules are not likely to affect the natural cash flow waterfall.

A failure to pay the Notes in full on the Mandatory Call Date (June 2027) will trigger a mandatory auction of all assets. If the auction fails to elicit sufficient proceeds to pay off the notes, another auction will follow every three months for up to a year after the Mandatory Call Date. If these have failed to pay off the notes, this is deemed an Auction Failure, and subsequent auctions will proceed every six months.

If the Class M6 and Class M7 Notes have not been redeemed or paid in full by the Mandatory Call Date, these notes will accrue additional accrued amounts. Morningstar DBRS does not rate these additional accrued amounts.

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 Amounts. In addition, the associated financial obligations for the Class A, M1, M2, M3, M4, and M5 Notes include the related Cap Carryover and Interest Payment Amounts.

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, the credit ratings on the Notes do not address Additional Accrued Amounts based on their 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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 Morningstar DBRS Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. Morningstar DBRS 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.

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@dbrsmorningstar.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 (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- 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://www.dbrsmorningstar.com/research/420106
-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://www.dbrsmorningstar.com/research/420107
-- 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 info@dbrsmorningstar.com.