Morningstar DBRS Finalizes Provisional Credit Rating of AAA (sf) on CHIP Mortgage Trust's Series 2024-1 Medium Term Notes

DBRS Limited (Morningstar DBRS) finalized its provisional credit rating of AAA (sf) on the Series 2024-1 Medium Term Notes (the Notes) issued by CHIP Mortgage Trust (the Trust). All senior notes previously issued and to be issued by the Trust rank pari passu with each other.

The Notes have a coupon of 4.244% and an Expected Final Payment Date of January 28, 2030. If the Notes are not fully repaid on the Expected Final Payment Date, the Notes will start to amortize and pay monthly interest equal to Daily Compounded CORRA plus 2.25% per year until they are fully repaid. Morningstar DBRS's rating is an opinion on the risk that the Trust will fail to fully repay the Notes by the legal maturity date, which is January 28, 2050.

The AAA (sf) rating is based on the following factors:

(1) The level of credit enhancement equal to a minimum of 7% of the asset balance (based on the limit on senior debt issuance of up to 93% of the aggregate outstanding asset balance) is commensurate with the rating assigned. Credit enhancement is provided by a combination of (a) a minimum cash reserve equal to six months of interest on the Notes to mitigate cash flow irregularity, (b) overcollateralization, and (c) subordination (if applicable).

(2) The conservative underwriting standards associated with the origination of the reverse mortgages, including the use of qualified appraisers; the reduction of appraised values based on the region, property quality, property type, and specific location to reflect potential market illiquidity or housing value volatility; and the use of conservative actuarial tables in determining the expected occupancy term, resulting in low historical losses. Since 2000, only 143 out of the more than 13,000 reverse mortgages purchased by the Trust (as of August 31, 2024) have experienced a loss, meaning the amount owing at the end of the occupancy term exceeded the net proceeds from the sale of the property. All reverse mortgages have at least 40% equity in the underlying properties at origination and the current mortgage portfolio held directly by the Trust has a weighted-average loan-to-value ratio (weighted by current loan amount) of 44.8% (as of July 31, 2024), as calculated by Morningstar DBRS.

(3) The extensive experience of HomeEquity Bank (rated BBB (low) with a Stable trend by Morningstar DBRS) in originating, underwriting, and servicing reverse mortgages, along with the level of ongoing review and reappraisal of the properties. Reappraisal of properties occurs on a formal basis at least every five years.

(4) The assets are a large, diversified portfolio of reverse mortgages with a first-ranking charge on residential properties across Canada.

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 are the related Accrued Interest Component and Principal Component.

Morningstar DBRS' credit rating does not address non-payment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

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

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating Canadian Residential Mortgages, Home Equity Lines of Credit and Reverse Mortgages (June 28, 2024; https://dbrs.morningstar.com/research/435275).

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://dbrs.morningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

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.

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

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

Operational Risk Assessments for Canadian Structured Finance (August 6, 2024; https://dbrs.morningstar.com/research/437547)

Legal and Derivatives Criteria for Canadian Structured Finance (August 12, 2024; https://dbrs.morningstar.com/research/437761)

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/410863.

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