Press Release

Morningstar DBRS Takes Credit Rating Actions on 13 U.S. RMBS Transactions

RMBS
August 22, 2024

DBRS, Inc. (Morningstar DBRS) reviewed 67 classes from 13 U.S. residential mortgage-backed securities (RMBS) transactions. Of the 67 classes reviewed, Morningstar DBRS upgraded 19 credit ratings, and confirmed 48 credit ratings.

Morningstar DBRS' credit rating actions are based on the following analytical considerations:
-- Key performance measures, as reflected in credit enhancement increases since deal inception and running total cumulative loss percentages.
-- The pools backing the reviewed RMBS transactions consist of reverse mortgage and HEI collateral.

Lenders typically offer RM loans to people who are at least 62 years old. Through RM 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 if (1) the borrower dies, (2) the borrower sells the related residence, (3) the borrower no longer occupies the related residence for a period (usually a year), (4) it is no longer the borrower's primary residence, (5) a tax or insurance default occurs, or (6) the borrower fails to properly maintain the related residence. In addition, borrowers must be current on any homeowner's association dues if applicable. RMs are typically nonrecourse; borrowers do not 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.

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.

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 Amount, Interest Payment Amount, and Interest Carryover Amount.

Morningstar DBRS' 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, Morningstar DBRS' ratings do not address the payment of any Additional Accrual Amounts on each rated note.

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 transaction assumptions consider Morningstar DBRS' baseline macroeconomic scenarios for rated sovereign economies, available in its commentary "Baseline Macroeconomic Scenarios for Rated Sovereigns June 2024 Update" published on June 28, 2024, (https://dbrs.morningstar.com/research/435206/baseline-macroeconomic-scenarios-for-rated-sovereigns-june-2024-update).

These baseline macroeconomic scenarios replace Morningstar DBRS' moderate and adverse coronavirus pandemic scenarios, which were first published in April 2020.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) 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 Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US Dollars unless otherwise noted.

The principal methodologies applicable to the credit ratings are: Rating and Monitoring U.S. Reverse Mortgage Securitizations (28 June 2024) https://dbrs.morningstar.com/research/435264, and Rating and Monitoring U.S. Reverse Mortgage Securitizations (Appendix 3: Home Equity Investments Methodology) (June 28, 2024; https://www.dbrsmorningstar.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.

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/legal-criteria-for-us-structured-finance)

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

Ratings

Brean Asset-Backed Securities Trust 2021-RM2
Brean Asset-Backed Securities Trust 2022-RM3
Brean Asset-Backed Securities Trust 2022-RM4
Brean Asset-Backed Securities Trust 2022-RM5
Brean Asset-Backed Securities Trust 2023-RM7
Brean Asset-Backed Securities Trust 2023-SRM1
CFMT 2022-HB10, LLC
Finance of America HECM Buyout 2022-HB1
Finance of America HECM Buyout 2022-HB2
Finance of America Structured Securities Trust 2023-S3
Point Securitization Trust 2023-1
Unison Trust 2023-2
Unlock HEA Trust 2023-1
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

ALL MORNINGSTAR DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AND ADDITIONAL INFORMATION REGARDING MORNINGSTAR DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODOLOGIES.

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