Morningstar DBRS Assigns Provisional Credit Ratings to Homeward Opportunities Fund Trust 2025-RRTL1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Mortgage-Backed Notes, Series 2025-RRTL1 (the Notes) to be issued by Homeward Opportunities Fund Trust 2025-RRTL1 (HOF 2025-RRTL1 or the Issuer) as follows:

-- $207.2 million Class A1 at (P) A (low) (sf)
-- $175.5 million Class A1A at (P) A (low) (sf)
-- $31.7 million Class A1B at (P) A (low) (sf)
-- $18.2 million Class A2 at (P) BBB (low) (sf)
-- $17.6 million Class M1 at (P) BB (low) (sf)
-- $13.5 million Class M2 at (P) B (low) (sf)

The (P) A (low) (sf) credit rating reflects 23.25% 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 16.50%, 10.00%, 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 an 18-month revolving portfolio of residential transition loans (RTLs) funded by the issuance of the Notes. As of the Initial Cut-Off Date, the Notes are backed by:
-- 468 mortgage loans with a total principal balance of approximately $166,334,493;
-- Approximately $103,665,507 in the Accumulation Account; and
-- Approximately $2,000,000 in the Interest Reserve Account.

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

HOF 2025-RRTL1 represents the fourth RTL securitization issued by the Sponsor, Homeward Opportunities Fund LP (HOF). Formed in 2019, HOF is a fund managed by and affiliated with Neuberger Berman Investment Advisers LLC (NBIA), whose investment objective is to achieve an attractive risk-adjusted return on investment by acquiring, managing, holding for investment, and disposing of U.S. residential real estate-related investments, including but not limited to residential, commercial, multifamily, residential rental, mixed residential/commercial, bridge, and investment mortgage loans.

The revolving portfolio generally consists of first-lien, fixed-rate, interest-only (IO) balloon RTL with original terms to maturity of 12 to 24 months. The loans may be extended, 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 735.
-- A maximum WA loan-to-cost ratio of 80.0%.
-- A maximum NZ WA as repaired loan-to-value ratio of 70.0%.

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 used properties (the latter is limited to 5.0% 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 Servicing Administrator.

In the HOF 2025-RRTL1 revolving portfolio, RTLs may be:
-- Fully funded, (1) with no obligation of further advances to the borrower, or (2) 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; or
-- 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 their 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 HOF 2025-RRTL1 eligibility criteria, unfunded commitments are limited to 50.0% of the 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 February 2027, the Class A1, A1A, A1B, and A2 fixed rates listed in the credit ratings table will step up by 1.000% the following month.

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

The Servicers will satisfy Rehabilitation Disbursement Requests by (1) for loans with funded commitments, releasing funds from the rehab escrow account to the applicable borrower; or (2) for loans with unfunded commitments, releasing funds from principal collections on deposit in the related Servicers' Custodial Account (Rehabilitation Advances). If amounts in the applicable Servicers' Custodial Account are insufficient to fund a Rehabilitation Advance, the Depositor may advance funds from the Accumulation Account. The Depositor will be entitled to reimburse itself for Rehabilitation Disbursement Requests from time to time from the Accumulation Account.

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 5.00% 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.

An Interest Reserve Account is in place to help cover the first three months of interest payments to the Notes. Such account is funded upfront in an amount equal to $2,000,000. On the payment dates occurring in March, April, and May 2025, the Paying Agent will withdraw a specified amount to be included in available funds.

Historically, 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 NBIA's historical acquisitions and incorporated several stress scenarios where paydowns may or may not sufficiently cover draw commitments. Please see the Cash Flow Analysis section of the related presale report for more details.

OTHER TRANSACTION FEATURES
Optional Redemption
On any date on or after 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 par plus interest and fees (the Redemption Price).

On any Payment Date following the termination of the Reinvestment Period, the Depositor, at its option, may purchase all of the mortgage loans at the Redemption Price.

Repurchase Option
The Sponsor will have the option to repurchase any DQ or defaulted 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 as of the Initial Cut-Off Date. During the reinvestment period, if the Depositor repurchases DQ or defaulted 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.

Repurchases
A mortgage loan may be repurchased under the following circumstances:
-- There is a material representations and warranties (R&W) breach, a material document defect, or a diligence defect that the Sponsor is unable to cure;
-- The Sponsor elects to exercise its Repurchase Option; or
-- An optional redemption occurs.

U.S. Credit Risk Retention
As the Sponsor, HOF, 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 properties that are located within certain disaster areas (such as those impacted by the Greater Los Angeles wildfires). Although many RTL already have a rehab component, the original scope of rehab may be affected by such disasters. After a disaster, the Servicers follow standard protocol, which includes a review of the impacted area, borrower outreach, 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.
-- 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 DQ 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 for each of the rated Notes are the related Note Interest Payment Amount, the Interest Carryforward Amount, and the Note Amount.

Morningstar DBRS' credit ratings on the Class A1, Class A1A, and Class A1B notes also address the credit risk associated with the increased rate of interest applicable to Class A1, Class A1A, and Class A1B if the Class A1, Class A1A, and Class A1B notes remain outstanding on the step-up date (March 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) 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 (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 final credit ratings on the above-mentioned securities 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.

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.

RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model (Version 1.3.27.1)
https://dbrs.morningstar.com/research/445477

-- 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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.