Morningstar DBRS Assigns Provisional Ratings to Mello Warehouse Securitization Trust 2024-1

DBRS, Inc. (Morningstar DBRS) assigned the following provisional ratings to Mello Warehouse Securitization Notes, Series 2024-1 (the Notes) to be issued by Mello Warehouse Securitization Trust 2024-1 (MWST 2024-1):

-- $201.0 million Class A at AAA (sf)
-- $3.3 million Class B at AA (sf)
-- $31.5 million Class C at A (sf)
-- $28.1 million Class D at BBB (sf)
-- $24.2 million Class E at B (sf)
-- $12.0 million Class F at B (sf)

The AAA (sf) credit rating on the Notes reflects 33.00% of credit enhancement provided by subordinated notes. The AA (sf), A (sf), and BBB (sf) credit ratings reflect 31.90%, 21.40%, and 12.05% of credit enhancement respectively. The B (sf) credit rating on the Class E and Class F Notes reflect the Long-Term Issuer Rating of the Repo Guarantor.

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

The securitization is backed by a two-year revolving warehouse facility and is funded by the issuance of the Notes. This is the 10th warehouse securitization sponsored by loanDepot.com, LLC (loanDepot), eight of which have paid off.

The warehouse facility consists of a revolving pool of first-lien, fixed- or adjustable-rate eligible mortgage loans originated by loanDepot in accordance with the purchase criteria of Fannie Mae or Freddie Mac or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The characteristics of the revolving pool include a minimum weighted-average (WA) FICO score of 725 and a maximum WA loan-to-value (LTV) ratio of 85.0%.

U.S. Bank National Association (US Bank; rated AA with a Stable trend by Morningstar DBRS) will act as the Standby Servicer and Securities Intermediary. U.S. Bank Trust Company, National Association (US Bank Trust Co.; rated AA with a Stable trend by Morningstar DBRS) will act as Indenture Trustee, Note Calculation Agent, and Collateral Agent. Wilmington Savings Fund Society, FSB will serve as the Owner Trustee, and Deutsche Bank National Trust Company (DBNTC) will serve as the Mortgage Loan Custodian.

The Repo Buyer (MWST 2024-1) will enter into a master repurchase agreement (MRA) with the Repo Seller (loanDepot) and the Collateral Agent. The MRA will provide for the transfer by the Repo Seller, against the transfer of the purchase price by the Repo Buyer, of eligible mortgage loans, with a simultaneous agreement by the Repo Buyer to transfer such purchased mortgage loans to the Repo Seller against the transfer of the repurchase price.

The Repo Seller will repurchase all purchased mortgage loans no later than 30 days following the related purchase date. However, such loans will automatically be purchased again by the Repo Buyer unless (1) such the loan has already been in the facility for more than 120 days in the aggregate (whether or not consecutive), (2) the loan is purchased by a takeout investor, (3) the loan ceases to be an eligible mortgage loan, or (4) at the expiration of the facility. If any purchased loan exits this transaction and the Repo Seller has not exercised its prepayment option, the Repo Seller will be required to transfer one or more additional eligible mortgage loans and/or cash in exchange for the purchased mortgage loans that have been reacquired by the Repo Seller.

The aggregate principal balance of all purchased mortgage loans pledged as collateral plus amounts on deposit in the Repo Buyer's account will at all times be at least equal to the outstanding aggregate balance of the Notes. The minimum amount of eligible mortgage loans purchased by the Repo Buyer will be $30,000,000.

The MRA will terminate on the earlier of (1) September 25, 2026; (2) the Repo Seller exercising its right to optional prepayment in full; or (3) the date of the occurrence of a repo event of default.

During the revolving period the Repo Seller will be required to make interest payments to the Notes and additionally post cash or additional eligible mortgage loans to meet any margin deficit. In general, it is expected that the Notes will not receive payments of principal until the end of the revolving period unless the Repo Seller chooses to exercise an optional prepayment. If the Repo Seller defaults under the MRA then the source of interest and principal payments to the Notes is expected to be the purchased mortgage loans that remain in the facility.

If an event of default occurs and it has not been waived, the Indenture Trustee will be required to conduct one or more auctions over a four-month period to sell the collateral. The Trustee is not allowed to sell the collateral unless liquation proceeds are adequate to make the Class A, Class B, Class C, Class D, and Class E Notes whole (minimum sale price). If the collateral is not sold then collections from the purchased mortgages are used to make payments to the Notes. Post default, the transaction employs a sequential-payment structure.

LD Holdings Group LLC (LD Holdings), rated 'B' with a Stable trend by Morningstar DBRS, will serve as Repo Guarantor in this transaction. Please refer to the press release of LD Holdings Long-Term Issuer Rating available at https://dbrs.morningstar.com/issuers/30735. LD Holdings is a holding company that owns majority equity interest in loanDepot and several other affiliated businesses operating in the broader real estate and mortgage sectors. As a Repo Guarantor, LD Holdings will guaranty all the payment obligations of Repo Seller under the MRA. For this transaction, the ratings assigned to the notes are the higher of (i) the Repo Guarantor's Long-Term Issuer Rating and ii) the ratings of the notes solely based on the strength of the mortgage loans backing the notes. At the end of the revolving period, if the Repo Guarantor does not satisfy its obligations, then the ratings of the notes will be evaluated only on the strength of the mortgage loans backing the notes. As of the Closing Date, the Class E and Class F Notes credit ratings will be based on the Long-Term Issuer Rating of the Repo Guarantor.

The coupon rates for the Notes are based on the one-month term Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available, please see the Private Placement Memorandum (PPM) for more details.

The credit ratings reflect transactional strengths that include the following:
-- Well-qualified borrowers;
-- Ongoing third-party due diligence;
-- Standby servicer;
-- Experienced loan custodian; and
-- Margin maintenance.

The transaction also includes the following challenges:
-- Wet loans;
-- Limited scope of third-party due diligence; and
-- Representations and warranties framework.

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

Morningstar DBRS' credit rating on the Notes addresses 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 Interest Payment Amount and the related Note Balance.

Morningstar DBRS' credit ratings do not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, in this transaction, Morningstar DBRS' credit ratings do not address Basis Risk Shortfall Amount 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.

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 (August 13, 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in US 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 (June 28, 2024) https://dbrs.morningstar.com/research/435279.

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.

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 the final credit ratings on the above-mentioned securities are 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.
140 Broadway, 43rd Floor
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.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (June 28, 2024),
https://dbrs.morningstar.com/research/435258
-- 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 (June 28, 2024),
https://dbrs.morningstar.com/research/435282
-- Representations and Warranties Criteria for U.S. RMBS Transactions (June 28, 2024),
https://dbrs.morningstar.com/research/435273
-- Legal Criteria for U.S. Structured Finance (April 15, 2024),
https://dbrs.morningstar.com/research/431205
-- North American Structured Finance Flow-Through Ratings (June 28, 2024),
https://dbrs.morningstar.com/research/435296
-- Operational Risk Assessment for U.S. RMBS Originators (June 28, 2024),
https://dbrs.morningstar.com/research/435259
-- Operational Risk Assessment for U.S. RMBS Servicers (June 28, 2024),
https://dbrs.morningstar.com/research/435261

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