Morningstar DBRS Finalizes Provisional Ratings on Vista Point Securitization Trust 2024-CES3

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following Asset-Backed Securities, Series 2024-CES3 (the Notes) issued by Vista Point Securitization Trust 2024-CES3 (VSTA 2024-CES3 or the Trust):

-- $185.8 million Class A-1 at AAA (sf)
-- $13.5 million Class A-2 at AA (sf)
-- $13.0 million Class A-3 at A (sf)
-- $13.4 million Class M-1 at BBB (sf)
-- $12.4 million Class B-1 at BB (sf)
-- $8.2 million Class B-2 at B (sf)

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

The AAA (sf) credit rating on the Notes reflects 27.30% of credit enhancement provided by subordinate Notes. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) credit ratings reflect 22.00%, 16.90%, 11.65%, 6.80%, and 3.60% of credit enhancement, respectively.

VSTA 2024-CES3 is a securitization of a portfolio of fixed, prime, expanded-prime, closed-end second-lien (CES) residential mortgages funded by the issuance of the Asset-Backed Securities, Series 2024-CES3 (the Notes). The Notes are backed by 1,314 mortgage loans with a total principal balance of 255,545,541 as of the Cut-Off Date (November 30, 2024).

The portfolio, on average, is two months seasoned, though seasoning ranges from zero to 20 months. Borrowers in the pool represent prime and expanded-prime credit quality--weighted-average (WA) Morningstar DBRS-calculated FICO score of 734, Issuer-provided original combined loan-to-value ratio (CLTV) of 66.8%. The loans were generally originated with Morningstar DBRS defined full documentation standards.

As of the Cut-Off Date, all but three loans (99.8% of the pool) were current. Since then, two loans (0.2%) that were 30 days delinquent have self-cured, leaving only one loan (<0.1%) 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method. Additionally, none of the borrowers are in active bankruptcy.

VSTA 2024-CES3 represents the third CES securitization by Vista Point Mortgage, LLC. New American Funding, LLC (15.2%), Vista Point Mortgage, LLC (14.1%), FundLoans Capital (11.6%), and Home Mortgage Alliance Corporation (11.1%) are the top originators for the mortgage pool. The remaining originators each comprise less than 10.0% of the mortgage loans.

NewRez, LLC d/b/a Shellpoint Mortgage Servicing (Shellpoint; 100.0%) is the Servicer of all the loans in this transaction.

U.S. Bank Trust Company, National Association (rated AA with a Stable trend by Morningstar DBRS) will act as the Indenture Trustee, Paying Agent, Note Registrar, and Certificate Registrar. U.S. Bank National Association will act as the Custodian. U.S. Bank Trust National Association will act as the Delaware Trustee.

On or after the earlier of (1) the Payment Date occurring in December 2027 or (2) the date when the aggregate stated principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Controlling Holder (majority holder of the Class XS Notes; initially expected to be affiliate of the Sponsor), may terminate the Issuer at a price equal to the greater of (A) the class balances of the related Notes plus accrued and unpaid interest, including any cap carryover amounts and (B) the principal balances of the mortgage loans plus accrued and unpaid interest, including fees, expenses, and indemnification amounts. The Controlling Holder must complete a qualified liquidation, which requires (1) a complete liquidation of assets within the Trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.

The Controlling Holder will have the option, but not the obligation, to repurchase any mortgage loan (other than loans under forbearance plan as of the Closing Date) that becomes 90 or more days delinquent at the repurchase price (par plus interest), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

Although the majority of the mortgage loans were originated to satisfy the Consumer Financial Protection Bureau's (CFPB) Ability-to-Repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government, or private-label nonagency prime jumbo products for various reasons. In accordance with the Qualified Mortgage (QM)/ATR rules, 86.5% (includes 4.2% that are consumer investor loans) of the loans are designated as non-QM, 0.3% are designated as QM Rebuttable Presumption, and 5.0% are designated as QM Safe Harbor. Approximately 8.1% of the mortgages are loans were not subject to the QM/ATR rules as they are made to investors for business purposes.

There will not be any advancing of delinquent principal or interest on any mortgages by the Servicer or any other party to the transaction. In addition, the related servicer is not obligated to make advances in respect of homeowner association fees, taxes, and insurance, installment payments on energy improvement liens, and reasonable costs and expenses incurred in the course of servicing and disposing of properties unless a determination is made that there will be material recoveries.

For this transaction, any loan that 180 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, upon review by the related Servicer, may be considered a Charged Off Loan. With respect to a Charged Off Loan, the total unpaid principal balance will be considered a realized loss and will be allocated reverse sequentially to the Noteholders. If there are any subsequent recoveries for such Charged Off Loans, the recoveries will be included in the principal remittance amount and applied in accordance with the principal distribution waterfall; in addition, any class principal balances of Notes that have been previously reduced by allocation of such realized losses may be increased by such recoveries sequentially in order of seniority. Morningstar DBRS' analysis assumes reduced recoveries upon default on loans in this pool.

This transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls after the more senior tranches are paid in full (IPIP).

The credit ratings reflect transactional strengths that include the following:
-- Robust equity and prime/near-prime credit quality;
-- Certain second-lien attributes;
-- Satisfactory third-party due-diligence review;
-- Current loan status; and
-- Improved underwriting standards.

The transaction also includes the following challenges:
-- Representations and warranties framework;
-- No servicer advances of delinquent principal and interest; and
-- Limited third-party diligence valuation review on Portion of the Pool.

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 related Interest Payment Amount, Interest Carryforward Amount, and the related Class Principal Balance.

Morningstar DBRS' credit ratings on Class A-1, A-2, A-3, and M-1 Notes also addresses the credit risk associated with the increased rate of interest applicable to the Class A-1, A-2, A-3, and M-1 Notes if the Class A-1, A-2, A-3, and M-1 Notes remain outstanding on the step-up date (January 2029) in accordance with the applicable transaction document(s).

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 the payment of any Cap Carryover 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. 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 (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 (September 30, 2024) https://dbrs.morningstar.com/research/440090.

Other methodologies referenced in this transaction are listed at the end of this press release.

Morningstar DBRS materially deviated from its principal methodology when determining the credit ratings assigned to all rated classes by deriving probability of default for this pool by using the first-lien module (at the CLTV level) of its RMBS Insight model. The material deviation is warranted given that the CES module of Morningstar DBRS' proprietary RMBS Insight model is developed using pre-crisis CES mortgage and performance data, which does not give credit to certain collateral attributes and improved underwriting, and therefore may not be applicable for post-crisis CES loans.

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, 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
-- Third-Party Due-Diligence and Representations & Warranties Criteria for U.S. RMBS Transactions (September 30, 2024), https://dbrs.morningstar.com/research/440091
-- Legal Criteria for U.S. Structured Finance (December 3, 2024),
https://dbrs.morningstar.com/research/444064
-- Operational Risk Assessment for U.S. RMBS Originators and Servicer (September 30, 2024),
https://dbrs.morningstar.com/research/440086

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