Morningstar DBRS Assigns Provisional Credit Ratings to Finance of America HECM Buyout 2024-HB1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the following classes of Asset-Backed Notes, Series 2024-HB1 (the Notes) to be issued by Finance of America HECM Buyout 2024-HB1(the Issuer):

-- $383.7 million Class A1A at (P) AAA (sf)
-- $115.1 million Class A1B at (P) AAA (sf)
-- $63.2 million Class M1 at (P) AA (low) (sf)
-- $45.4 million Class M2 at (P) A (low) (sf)
-- $31.9 million Class M3 at (P) BBB (sf)
-- $33.1 million Class M4 at (P) BB (low) (sf)
-- $33.0 million Class M5 at (P) BB (low) (sf)

The AAA (sf) credit rating reflects 28.5% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (sf), and BB (low) (sf) credit ratings reflect 19.4%, 12.9%, 8.4%, and -1.1% of credit enhancement, respectively.

Other than the specified classes above, Morningstar DBRS does not rate any other classes that may be issued 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 a period of 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 homeowners association (HOA) dues if applicable. Reverse mortgages 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.

As of the August 31, 2024, Cut-Off Date, the collateral consists of approximately $697.69 million in unpaid principal balance from 2,302 performing and nonperforming home equity conversion mortgage (HECM) reverse mortgage loans secured by first liens typically on single-family residential properties, condominiums, multifamily (two- to four-family) properties, manufactured homes, and planned unit developments. Of the total loans, 1,344 have a fixed-rate interest (61.53% of the balance) with a weighted-average coupon (WAC) of 5.028%. The remaining 958 loans are adjustable rate (38.47% of the balance) with a WAC of 7.903%, bringing the entire collateral pool to a WAC of 6.134%.

Transaction Structure: The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (Class A1A 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 funds caps.

The Class A1B, M1, M2, M3, M4, and M5 Notes have principal lockout terms as they are not entitled to principal payments until they are in their applicable target amortization period, in which they are entitled to receive fixed scheduled payments and must be paid in full at the end of such target amortization period. Available cash will be trapped until these dates at which stage the class of notes in its target amortization period will start to receive principal payments in their scheduled amounts. Specifically, Classes A1B, M1, M2, M3, M4, and M5 are locked out until February 2026, May 2027, October 2027, June 2028, April 2029, and February 2030, respectively. Note that the Morningstar DBRS cash flow pertaining to each note models the first payment being received after these dates for each of the respective notes; hence, at the time of issuance, Morningstar DBRS does not expect these rules to affect the natural cash flow waterfall.

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 Certificates are the related Interest Payment Amount, Cap Carryover Amount, and Note Amount.

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.

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

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating and Monitoring U.S. Reverse Mortgage Securitizations (September 30, 2024) https://dbrs.morningstar.com/research/440088.

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 Notes and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned Notes is 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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info-DBRS@morningstar.com.

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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 and Servicers (September 30, 2024)
https://dbrs.morningstar.com/research/440086/
-- Third-Party Due-Diligence and Representations & Warranties Criteria for U.S. RMBS Transactions (September 30, 2024)
https://dbrs.morningstar.com/research/440091

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