Morningstar DBRS Finalizes Provisional Credit Ratings on RATE 2025-J1

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the Mortgage-Backed Notes, Series 2025-J1 (the Notes) issued by RATE Mortgage Trust 2025-J1 (RATE 2025-J1, or the Trust) as follows:

-- $311.0 million Class A-1 at AAA (sf)
-- $311.0 million Class A-2 at AAA (sf)
-- $311.0 million Class A-3 at AAA (sf)
-- $233.3 million Class A-4 at AAA (sf)
-- $233.3 million Class A-5 at AAA (sf)
-- $233.3 million Class A-6 at AAA (sf)
-- $186.6 million Class A-7 at AAA (sf)
-- $186.6 million Class A-8 at AAA (sf)
-- $186.6 million Class A-9 at AAA (sf)
-- $46.7 million Class A-10 at AAA (sf)
-- $46.7 million Class A-11 at AAA (sf)
-- $46.7 million Class A-12 at AAA (sf)
-- $124.4 million Class A-13 at AAA (sf)
-- $124.4 million Class A-14 at AAA (sf)
-- $124.4 million Class A-15 at AAA (sf)
-- $77.8 million Class A-16 at AAA (sf)
-- $77.8 million Class A-17 at AAA (sf)
-- $77.8 million Class A-18 at AAA (sf)
-- $35.3 million Class A-19 at AAA (sf)
-- $35.3 million Class A-20 at AAA (sf)
-- $35.3 million Class A-21 at AAA (sf)
-- $346.3 million Class A-22 at AAA (sf)
-- $346.3 million Class A-23 at AAA (sf)
-- $346.3 million Class A-24 at AAA (sf)
-- $346.3 million Class A-25 at AAA (sf)
-- $346.3 million Class A-X-1 at AAA (sf)
-- $311.0 million Class A-X-2 at AAA (sf)
-- $311.0 million Class A-X-3 at AAA (sf)
-- $311.0 million Class A-X-4 at AAA (sf)
-- $233.3 million Class A-X-5 at AAA (sf)
-- $233.3 million Class A-X-6 at AAA (sf)
-- $233.3 million Class A-X-7 at AAA (sf)
-- $186.6 million Class A-X-8 at AAA (sf)
-- $186.6 million Class A-X-9 at AAA (sf)
-- $186.6 million Class A-X-10 at AAA (sf)
-- $46.7 million Class A-X-11 at AAA (sf)
-- $46.7 million Class A-X-12 at AAA (sf)
-- $46.7 million Class A-X-13 at AAA (sf)
-- $124.4 million Class A-X-14 at AAA (sf)
-- $124.4 million Class A-X-15 at AAA (sf)
-- $124.4 million Class A-X-16 at AAA (sf)
-- $77.8 million Class A-X-17 at AAA (sf)
-- $77.8 million Class A-X-18 at AAA (sf)
-- $77.8 million Class A-X-19 at AAA (sf)
-- $35.3 million Class A-X-20 at AAA (sf)
-- $35.3 million Class A-X-21 at AAA (sf)
-- $35.3 million Class A-X-22 at AAA (sf)
-- $346.3 million Class A-X-23 at AAA (sf)
-- $346.3 million Class A-X-24 at AAA (sf)
-- $346.3 million Class A-X-25 at AAA (sf)
-- $346.3 million Class A-X-26 at AAA (sf)
-- $7.5 million Class B-1 at AA (high) (sf)
-- $7.5 million Class B-1A at AA (high) (sf)
-- $7.5 million Class B-X-1 at AA (high) (sf)
-- $4.6 million Class B-2 at A (high) (sf)
-- $4.6 million Class B-2A at A (high) (sf)
-- $4.6 million Class B-X-2 at A (high) (sf)
-- $3.7 million Class B-3 at BBB (high) (sf)
-- $1.8 million Class B-4 at BB (high) (sf)
-- $732.0 thousand Class B-5 at B (sf)

Classes A-X-1, A-X-2, A-X-3, A-X-4, A-X-5, A-X-6, A-X-7, A-X-8, A-X-9, A-X-10, A-X-11, A-X-12, A-X-13, A-X-14, A-X-15, A-X-16, A-X-17, A-X-18, A-X-19, A-X-20, A-X-21, A-X-22, A-X-23, A-X-24, A-X-25, A-X-26, B-X-1, and B-X-2 are interest-only (IO) notes. The class balances represent notional amounts.

Classes A-1, A-2, A-3, A-4, A-6, A-7, A-8, A-10, A-11, A-13, A-14, A-15, A-16, A-17, A-19, A-20, A-22, A-23, A-24, A-25, A-X-2, A-X-3, A-X-4, A-X-5, A-X-6, A-X-7, A-X-8, A-X-11, A-X-14, A-X-15, A-X-16, A-X-17, A-X-20, A-X-23, A-X-24, A-X-25, A-X-26, B-1, and B-2 are exchangeable classes. These classes can be exchanged for combinations of initial exchangeable notes as specified in the offering documents.

Classes A-1, A-2, A-3, A-4, A-5, A-6, A-7, A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15, A-16, A-17, and A-18 are super senior tranches. These classes benefit from additional protection from the senior support notes (Classes A-19, A-20, and A-21) with respect to loss allocation.

The AAA (sf) credit ratings on the Notes reflect 5.35% of credit enhancement provided by subordinated notes. The AA (high) (sf), A (high) (sf), BBB (high) (sf), BB (high) (sf), and B (sf) credit ratings reflect 3.30%, 2.05%, 1.05%, 0.55%, and 0.35% of credit enhancement, respectively.

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

Morningstar DBRS finalized its provisional credit ratings on RATE 2025-J1, a securitization of a portfolio of first-lien, fixed-rate prime residential mortgages funded by the issuance of the Notes. The Notes are backed by 324 loans with a total principal balance of $365,884,030 as of the Cut-Off Date (February 1, 2025).

Guaranteed Rate, Inc. (Guaranteed Rate or GRI), as the Sponsor, began issuing prime jumbo securitizations from its RATE shelf in early 2021 and this transaction represents the tenth prime jumbo RATE deal. The pool consists of fully amortizing fixed-rate mortgages (FRMs) with original terms to maturity of 30 years and a weighted-average (WA) loan age of two months.

All of the mortgage loans were originated by Guaranteed Rate. Guaranteed Rate is also the Servicing Administrator and Sponsor of the transaction. The loans will be serviced by ServiceMac, LLC (ServiceMac). Computershare Trust Company, N.A. (Computershare Trust Company; rated BBB (high) with a Stable trend by Morningstar DBRS) will act as the Master Servicer, Loan Agent, Paying Agent, Note Registrar, and Certificate Registrar. Deutsche Bank National Trust Company will act as the Custodian. Wilmington Savings Fund Society, FSB will serve as Trustee.

Similar to the prior RATE securitizations, the Servicing Administrator will fund advances of delinquent principal and interest (P&I) on any mortgage until such loan becomes 120 days delinquent or such P&I advances are deemed to be unrecoverable by the Servicer or the Master Servicer (Stop-Advance Loan). The Servicing Administrator will also fund advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties.

The interest entitlements for each class in this transaction are reduced reverse sequentially by the delinquent interest that would have accrued on the Stop-Advance Loans. In other words, investors are not entitled to any interest on such severely delinquent mortgages, unless such interest amounts are recovered. The delinquent interest recovery amounts, if any, will be distributed sequentially to the P&I notes.

The Sponsor will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 to 120 days delinquent under the Mortgage Bankers Association (MBA) method at a price equal to par plus interest and unreimbursed servicing advance amounts, provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The transaction employs a senior-subordinate, shifting-interest cash flow structure that is enhanced from a pre-crisis structure.

Morningstar DBRS discontinued and withdrew its credit ratings on Classes A-1L, A-2L, and A-3L Loans initially contemplated in the offering documents, as they were not issued at closing.

Maryland Consumer Purpose
In 2024, the Maryland Appellate Court ruled that a statutory trust that held a defaulted HELOC must be licensed as both an Installment Lender and a Mortgage Lender under Maryland law prior to proceeding to foreclosure on the HELOC. On January 10, 2025, the Maryland Office of Financial Regulation ("OFR") issued emergency regulations that apply the decision to all secondary market assignees of Maryland consumer-purpose mortgage loans, and specifically require "passive trusts" that acquire or take assignment of Maryland mortgage loans that are serviced by others to be licensed. While the emergency regulations became effective immediately, OFR indicated that enforcement would be suspended until April 10, 2025. The emergency regulations will expire on June 16, 2025, and the OFR has submitted the same provisions as the proposed, permanent regulations for public comment. Failure of the Issuer to obtain the appropriate Maryland licenses may result in the Maryland OFR taking administrative action against the Issuer and/or other transaction parties, including assessing civil monetary penalties and issuing a cease and desist order. Further, there may be delays in payments on, or losses in respect of, the Notes if the Issuer or Servicer cannot enforce the terms of a Mortgage Loan or proceed to foreclosure in connection with a Mortgage Loan secured by a Mortgaged Property located in Maryland, or if the Issuer is required to pay civil penalties.

Approximately 1.4% of the pool (4 loans) are Maryland consumer-purpose mortgage loans. In the event losses are experienced on one of these loans, the Sponsor may be obligated to cure breach, pay the loss amount, repurchase, or replace the affected loan.

The credit ratings reflect transactional strengths that include the following:
-- High-quality credit attributes;
-- Well-qualified borrowers;
-- Satisfactory third-party due-diligence review;
-- Structural enhancements; and
-- 100% current loans.

The transaction also includes the following challenges:
-- Representations and warranties framework;
-- Limited advances of delinquent P&I; and
-- Servicing administrator's financial capabilities.

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

Morningstar DBRS' credit ratings on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations Interest Payment Amount, Interest Shortfall, and Debt Amount (for Non-IO Notes).

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 (January 02, 2025) https://dbrs.morningstar.com/research/445477.

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.

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 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.