Morningstar DBRS Assigns Provisional Credit Ratings to CFMT 2024-R1, LLC

DBRS, Inc. (Morningstar DBRS) assigned the following provisional credit ratings to the Mortgage-Backed Notes, Series 2024-R1 (the Notes) to be issued by CFMT 2024-R1, LLC (CFMT 2024-R1 or the Issuer):

-- $118.7 million Class A-1 at (P) AAA (sf)
-- $17.9 million Class A-2 at (P) AA (high) (sf)
-- $17.9 million Class A-3 at (P) A (high) (sf)
-- $15.4 million Class M-1 at (P) BBB (high) (sf)
-- $29.9 million Class M-2 at (P) BB (low) (sf)

The (P) AAA (sf) credit rating on the Class A-1 Notes reflects 48.65% of credit enhancement provided by the subordinated notes. The (P) AA (high) (sf), (P) A (high) (sf), (P) BBB (high) (sf), and (P) BB (low) (sf) credit ratings reflect 40.90%, 33.15%, 26.50%, and 13.55% of credit enhancement, respectively.

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

CFMT 2024-R1 is a securitization of a portfolio of newly originated and seasoned, performing and reperforming, first-lien and second-lien residential mortgages to be funded by the issuance of the Notes. The Notes are backed by 1,040 loans with a total principal balance of $231,135,598 as of the cut-off date (August 31, 2024).

Morningstar DBRS calculated the portfolio to be approximately 67 months seasoned on average, though the age of the loans is dispersed, ranging from seven months to 372 months. Approximately 69.7% of the loans had origination guideline or document deficiencies, which prevented them from being sold to Fannie Mae, Freddie Mac, or another purchaser, and the loans were subsequently put back to the sellers. In its analysis, Morningstar DBRS assessed such defects and applied certain penalties, consequently increasing expected losses on the mortgage pool.

In the portfolio, 19.7% of the loans are modified, 73.2% of which were modified more than two years ago. Within the portfolio, 151 mortgages have noninterest-bearing deferred amounts, equating to 1.5% of the total unpaid principal balance (UPB). Unless specified otherwise, Morningstar DBRS based all statistics on the mortgage loans on the current UPB, including the applicable noninterest-bearing deferred amounts.

Based on Issuer-provided information, 24.2% of the loans in the pool are not subject to or exempt from the Consumer Financial Protection Bureau's (CFPB) Ability-to-Repay (ATR)/Qualified Mortgage (QM) Rule because of seasoning or because they are business-purpose loans. The loans subject to the ATR/QM Rule are designated as QM Safe Harbor (44.3%), QM Rebuttable Presumption (10.4%), and Non-Qualified Mortgage (21.0%) by UPB.

Cascade Funding, LP - Series 12 (the Sponsor) acquired the mortgage loans prior to the upcoming closing date and, through a wholly owned subsidiary, Cascade Funding Mortgage Depositor, LLC, will contribute the loans to CFMT 2024-R1. As the Sponsor, Cascade Funding, LP - Series 12 or one of its majority-owned affiliates will retain the membership certificate representing the initial overcollateralization amount and, if required, a portion of the Class B Notes to satisfy the credit risk retention requirements.

CFMT 2024-R1 is the Issuer's first scratch-and-dent rated securitization. The Sponsor has securitized many rated and unrated transactions under the CFMT shelf, most of which have been reverse mortgage and other residential mortgage transactions.

Carrington Mortgage Services, LLC (the Servicer) will service all of the mortgage loans.

The Servicer will not advance any delinquent principal and interest (P&I) on the mortgages; however, it is obligated to make advances in respect of prior liens, insurance, real estate taxes, and assessments as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Issuer has the option to redeem the Notes in full at a price equal to the sum of (1) the remaining aggregate Note amount; (2) any accrued and unpaid interest due on the Notes through the redemption date (including any cap carryover); and (3) any fees and expenses incurred by the transaction parties, including any unreimbursed servicing advances. Optional redemption may be exercised on or after the payment date in October 2026.

Additionally, failure to pay the Notes in full by the payment date in October 2029 will trigger a mandatory auction of the underlying certificates by the Asset Manager or an agent it appoints on the payment date of November 2029. If the auction fails to elicit sufficient proceeds to make the Notes whole, another auction will follow every four months for the first year and subsequent auctions will be carried out every six months. If the Asset Manager fails to conduct the auction, holders of the most junior class of Notes (other than any rated Notes retained and held by the Sponsor or its affiliates holding more than 50% of such class of Notes) will have the right to appoint an auction agent to conduct the auction.

The transaction employs a sequential-pay cash flow structure with a bullet feature to Class A-2 and more subordinate notes on the expected redemption date (the payment date in October 2028). The Issuer will first use the P&I collections to pay interest and any cap carryover amount to the Notes sequentially and then to pay Class A-1 until its balance is reduced to zero, which may provide for timely payment of interest on certain rated Notes. Class A-2 and below are not entitled to any payments of principal until the expected redemption date or upon the occurrence of a credit event, except for remaining available funds representing net sales proceeds of the mortgage loans. Prior to the expected redemption date or an event of default (EOD), any available funds remaining after Class A-1 is paid in full will be deposited into a redemption account. Beginning on the payment date in October 2028, the Class A-1 and the other offered Notes will be entitled to their initial note rate plus the step-up note rate of 1.00% per annum. If the Issuer does not redeem the rated Notes in full by the payment date in October 2030 or an EOD occurs and is continuing, this constitutes a credit event. Upon the occurrence of a credit event, accrued interest on Class A-2 and the other offered Notes will be paid as principal to Class A-1 or the succeeding senior Notes until it has been paid in full. The redirected amounts will accrue on the balances of the respective Notes and will later be paid as principal payments.

The credit ratings reflect transactional strengths that include the following:
-- Collateral credit quality,
-- Structural features,
-- Current delinquency status, and
-- Third-party due-diligence review.

The transaction also includes the following challenges:
-- Loans originated outside of Fannie Mae, Freddie Mac, or investor guidelines,
-- Representations and warranties standard,
-- Assignments, endorsements, and missing documents, and
-- No servicer advances of delinquent principal and interest.

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 are the interest payment amount, cap carryover, and note amount.

Morningstar DBRS' credit rating on the Notes also addresses the credit risk associated with the increased rate of interest applicable to the Notes if they are not redeemed on the optional redemption date as defined in, and in accordance with, the applicable transaction documents.

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

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 (September 30, 2024).
https://dbrs.morningstar.com/research/440090

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
-- 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