Morningstar DBRS Assigns Provisional Credit Ratings to ROC Mortgage Trust 2025-RTL1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Mortgage-Backed Notes, Series 2025-RTL1 (the Notes) to be issued by ROC Mortgage Trust 2025-RTL1 (ROC 2025-RTL1 or the Issuer) as follows:

-- $149.4 million Class A1 at (P) A (low) (sf)
-- $14.2 million Class A2 at (P) BBB (low) (sf)
-- $13.7 million Class M1 at (P) BB (low) (sf)
-- $12.7 million Class M2 at (P) B (low) (sf)

The (P) A (low) (sf) credit rating reflects 25.30% of credit enhancement provided by the subordinated notes and overcollateralization. The (P) BBB (low) (sf), (P) BB (low) (sf), and (P) B (low) (sf) credit ratings reflect 18.20%, 11.35%, and 5.00% of credit enhancement, respectively.

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

This transaction is a securitization of a two-year revolving portfolio of residential transition loans (RTLs) funded by the issuance of the Notes. As of the Initial Cut-Off Date, the Notes were backed by:
-- 448 mortgage loans with a total unpaid principal balance of approximately $160,458,500,
-- Approximately $39,541,500 in the Accumulation Account, and
-- Approximately $1,000,000 in the Prefunding Interest Account.

Additional RTLs may be added to the revolving portfolio on future additional transfer dates, subject to the transaction's eligibility criteria.

Roc 2025-RTL1 represents the third RTL securitization on the Roc shelf. Roc Capital Holdings LLC is a privately held company formed in 2015 that provides business purpose loans to residential real estate investors. Roc Capital Holdings LLC, through affiliated entities (collectively, Roc360), is the originator (Loan Funder LLC), servicer (Loan Servicer LLC), and asset manager (Roc360 Advisors LLC). The Sponsor, Roc360 Real Estate Income Trust, Inc, is a real estate investment trust incorporated in 2023 that is managed by Roc360 Advisors LLC.

The revolving portfolio generally consists of first-lien, fixed-rate, interest-only (IO) balloon RTLs with original terms to maturity of six to 36 months. The loans may include extension options, which can lengthen maturities beyond the original terms. The characteristics of the revolving pool will be subject to eligibility criteria specified in the transaction documents and include, but are not limited to:
-- A minimum nonzero weighted-average (NZ WA) FICO score of 730,
-- A maximum NZ WA as-is loan-to-value (AIV (LTV) ratio of 80%,
-- A maximum NZ WA loan-to-cost (LTC) ratio of 85.0% for 1-4 family and 80.0% for multi-family and mixed use, and
-- A maximum NZ WA as-repaired Loan-to-Value LTV (ARV LTV) ratio of 65.0%.

RTL Features
RTLs, also known as fix-and-flip mortgage loans, are short-term bridge, construction, or renovation loans designed to help real estate investors purchase and renovate residential or multifamily 5+ and mixed-use properties (the latter is limited to 1.0% of the revolving portfolio), generally within 12 to 36 months. RTLs are similar to traditional mortgages in many aspects but may differ significantly in terms of initial property condition, construction draws, and the timing and incentives by which borrowers repay principal. For traditional residential mortgages, borrowers are generally incentivized to pay principal monthly so they can occupy the properties while building equity in their homes. In the RTL space, borrowers repay their entire loan amount when they (1) sell the property with the goal to generate a profit or (2) refinance to a term loan and rent out the property to earn income.

In general, RTLs are short-term IO balloon loans with the full amount of principal (balloon payment) due at maturity. The repayment of an RTL is mainly based on the ability to sell the related mortgaged property or to convert it into a rental property. In addition, many RTL lenders offer extension options, which provide additional time for borrowers to repay their mortgage beyond the original maturity date. For the loans in this transaction, such extensions may be granted, subject to certain conditions, at the direction of the Asset Manager.

In the Roc 2025-RTL1 revolving portfolio, RTLs may be:

Fully funded:
-- With no obligation of further advances to the borrower, or
-- With a portion of the loan proceeds allocated to a rehabilitation (rehab) escrow account for future disbursement to fund construction draw requests upon the satisfaction of certain conditions.
Partially funded:
-- With a commitment to fund borrower-requested draws for approved rehab, construction, or repairs of the property (Rehabilitation Disbursement Requests) upon the satisfaction of certain conditions.

After completing certain construction/repairs using its own funds, the borrower usually seeks reimbursement by making draw requests. Generally, construction draws are disbursed only upon the completion of approved construction/repairs and after a satisfactory construction progress inspection. Based on the Roc 2025-RTL1 eligibility criteria, unfunded commitments are limited to 30.0% of the portfolio by assets of the Issuer, which includes (1) the unpaid principal balance (UPB) of the mortgage loans and (2) amounts in the Accumulation Account.

Cash Flow Structure and Draw Funding

The transaction employs a sequential-pay cash flow structure. During the reinvestment period, the Notes will generally be IO. After the reinvestment period, principal will be applied to pay down the Notes sequentially. If the Issuer does not redeem the Notes by the payment date in August 2027, the Class A1 and A2 fixed rates will step up by 1.000% the following payment date.

There will be no advancing of delinquent (DQ) interest on any mortgage loan by the Servicer or any other party to the transaction. However, the Servicer is obligated to fund Servicing Advances which include taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties. The Servicer will be entitled to reimburse itself for Servicing Advances from available funds prior to any payments on the Notes.

The Servicer will satisfy Rehabilitation Disbursement Requests by (1) directing release of funds from the Rehab Escrow Account to the applicable borrower for loans with funded commitments (as of the Initial Cut-Off Date, there were no loans with funded commitments) or (2) for loans with unfunded commitments, (A) advancing funds on behalf of the Issuer (Rehabilitation Advances) or (B) directing the release of funds from the Accumulation Account. The Servicer will be entitled to reimburse itself for Rehabilitation Disbursement Requests from time to time from the Accumulation Account and from the transaction cash flow waterfall after payment of interest to the notes.

The Accumulation Account is replenished from the transaction cash flow waterfall, after payment of interest to the Notes, to maintain a minimum required funding balance. During the reinvestment period, amounts held in the Accumulation Account, along with the mortgage collateral, must be sufficient to maintain a minimum credit enhancement (CE) of approximately 5.0% to the most subordinate rated class. The transaction incorporates a Minimum Credit Enhancement Test during the reinvestment period, which if breached, redirects available funds to pay down the Notes, sequentially, prior to replenishing the Accumulation Account, to maintain the minimum CE for the rated Notes.

The transaction also employs the Expense Reserve Account, which will be available to cover fees and expenses. The Expense Reserve Account is replenished from the transaction cash flow waterfall, before payment of interest to the Notes, to maintain a minimum reserve balance.

A Prefunding Interest Account is in place to help cover three months of interest payments to the Notes. Such account is funded upfront in an amount equal to $1,000,000. On the payment dates occurring in March 2025, April 2025, and May 2025, the Paying Agent will withdraw a specified amount to be included in the available funds.

Historically, Roc360 RTL originations reviewed by Morningstar DBRS have generated robust mortgage repayments, which have been able to cover unfunded commitments in securitizations. In the RTL space, because of the lack of amortization and the short-term nature of the loans, mortgage repayments (paydowns and payoffs) tend to occur closer to or at the related maturity dates when compared with traditional residential mortgages. Morningstar DBRS considers paydowns to be unscheduled voluntary balance reductions (generally repayments in full) that occur prior to the maturity date of the loans, while payoffs are scheduled balance reductions that occur on the maturity or extended maturity date of the loans. In its cash flow analysis, Morningstar DBRS evaluated mortgage repayments relative to draw commitments for Roc360's historical originations and incorporated several stress scenarios where paydowns may or may not sufficiently cover draw commitments.

Other Transaction Features

Optional Redemption
On any date on or after the earlier of (1) the Payment Date following the termination of the Reinvestment Period or (2) the date on which the aggregate Note Amount falls to less than 25% of the initial Closing Date Note Amount, the Issuer, at its option, may purchase all of the outstanding Notes at the par plus interest and fees.

Repurchase Option
The Depositor will have the option to repurchase any DQ, defaulted or extended mortgage loan at the Repurchase Price, which is equal to par plus interest and fees. However, such voluntary repurchases may not exceed 10.0% of the cumulative UPB of the mortgage loans. During the reinvestment period, if the Depositor repurchases DQ, defaulted, or extended loans, this could potentially delay the natural occurrence of an early amortization event based on the DQ or default trigger. Morningstar DBRS' revolving structure analysis assumes the repayment of Notes is reliant on the amortization of an adverse pool regardless of whether it occurs early or not.

Loan Sales
The Issuer may sell a mortgage loan under the following circumstances:
-- The Seller is required to repurchase a loan because of a material breach, a material document defect, or the loan is a non-REMIC qualified mortgage,
-- The Depositor elects to exercise its Repurchase Option, or
-- An optional redemption occurs.

U.S. Credit Risk Retention
As the Sponsor, Roc360 Real Estate Income Trust, Inc., or through a majority-owned affiliate, will initially retain an eligible horizontal residual interest comprising at least 5% of the aggregate fair value of the securities (the Class XS Notes) to satisfy the credit risk retention requirements.

Natural Disasters/Wildfires
The pool contains loans secured by mortgage properties that are located within certain disaster areas (such as those impacted by the Greater Los Angeles wildfires). Although many RTLs have a rehab component, the original scope of rehab may be affected by such disasters. After a disaster, the Servicer follows a standard protocol, which includes a review of the impacted area, borrower outreach if necessary, and filing insurance claims as applicable. Moreover, additional loans added to the trust must comply with R&W specified in the transaction documents, including the damage R&W, as well as the transaction eligibility criteria.

The credit ratings reflect transactional strengths that include the following:
-- Robust pool composition defined by eligibility criteria
-- Historical paydowns and payoffs
-- Solid historical performance with favorable resolutions
-- Structural enhancements
-- Third-party due-diligence review framework

The transaction also includes the following challenges:
-- Funding of future construction draws
-- RTL loan characteristics
-- Representations and warranties framework
-- No advances of Delinquent interest

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

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 are the related Interest Payment Amount, the Interest Carryforward Amount, and the Note Amount.

Morningstar DBRS' credit ratings on the Class A1 and Class A2 Notes also address the credit risk associated with the increased rate of interest applicable to the Class A1 and Class A2 Notes if the Class A1 and Class A2 Notes are not redeemed by the payment date in August 2027 in accordance with the applicable transaction document(s).

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. For example, in this transaction, Morningstar DBRS' credit ratings do not address the payment of any Cap Carryover Amounts.

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 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) 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 (January 2, 2025)
https://dbrs.morningstar.com/research/445477.

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

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

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.

-- 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 Servicers (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.