Morningstar DBRS Assigns Provisional Credit Ratings to HTAP Issuer Trust 2025-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Asset-Backed Securities, Series 2025-1 (the Notes) to be issued by HTAP Issuer Trust 2025-1 (HTAP 2025-1) as follows:

-- $226.8 million Class A at (P) BBB (sf)
-- $12.6 million Class B at (P) BBB (low) (sf)

The (P) BBB (sf) credit rating reflects credit enhancement of 23.3% for Class A and the (P) BBB (low) (sf) credit rating reflects credit enhancement of 19.1% for Class B.

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

Home equity investments (HEIs) allow homeowners access to the equity in their homes without having to sell their homes or make monthly mortgage payments. HEIs provide homeowners with an alternative to borrowing and are available to homeowners of any age (unlike reverse mortgage loans, for example, for which there is often a minimum age requirement). A homeowner receives an upfront cash payment (an Advance or an Investment Amount) in exchange for giving an Investor (i.e., an Originator) a stake in their property. The homeowner retains sole right of occupancy of the property and pays all upkeep and expenses during the term of the HEI, but the Originator earns an investment return based on the future value of the property, typically subject to a returns cap.

Like reverse mortgage loans, the HEI underwriting approach is asset-based, meaning there is greater emphasis placed on the value of the underlying property and the amount of home equity than on the credit quality of the homeowner. The property value is the main focus for predicting investment return because it is the primary source of funds to satisfy the obligation. HEIs are nonrecourse; in a default situation a homeowner is not required to provide additional funds when the HEI settlement amount exceeds the remaining equity value in the property (after accounting for any other obligations such as senior liens, if applicable). Recovery of the Investment Amount and any Originator return is driven by the structure of the agreement, the amount of appreciation/depreciation on the property, the amount of debt that may be senior to the HEI, and the cap on investor return.

As of the cut-off date, the collateral consists of approximately $295.85 million in aggregate capped value from 2,500 nonrecourse HEI agreements secured by first, second, or third liens on single-family home, two- to four-family, manufactured home, condominium, apartment, and townhouse properties. All of the contracts in the asset pool were originated in 2024.

Of the pool, 208 contracts in the transaction are first-lien contracts, representing roughly $21.27 million in aggregate capped value; 1,900 are second-lien contracts, representing roughly $216.22 million in aggregate capped value; and 392 are third-lien contracts, representing roughly $58.35 million in aggregate capped value.

Of the pool, 7.19% of the contracts by aggregate capped value are first lien and have a weighted-average (WA) Hometap up share of 32.66% and WA Hometap down share of 32.66%, 73.09% are second-lien contracts and have a WA Hometap up share of 26.70% and WA Hometap down share of 26.70%, and the remaining 19.72% of the pool are third-lien contracts with a WA up share of 26.31% and WA Hometap down share 26.31%. This brings the entire transaction's WA Hometap up share to 27.05% and WA Hometap down share to 27.05%. To better understand the impact of the Hometap down share and other contract mechanics, please see the example in the Contract Mechanics¿Worked Example section. The original unadjusted loan-to-value ratio (LTV) of the pool is 43.11% (i.e., of senior liens ahead of the contracts). At cut-off, the pool had a WA contract-to-value (CTV; also known as option-to-value (OTV)) of 18.03%, and a WA loan plus contract-to-value (LCTV; also known as loan plus option-to-value (LOTV)) of 61.14%.

The transaction uses a sequential structure in which cash distributions, after fees, are used to reduce the interest payment amount and any interest carryforward amount on Class A, and Class B (as long as a Class B trigger event is not in effect). Payments are then made to reduce the note principal balance on Class A Notes until such notes are paid off. With respect to Class B Notes, payments are first made to interest amounts, then to reduce the note principal balance. The Class C Notes are principal only and will not be entitled to any payments of interest. Please see the priority of payments section below which describes trigger events that can change this payment logic.

A Class B trigger event will occur and continue if (1) the payment date on which the Borrower Trust Reserve Fund is less than 50% of the Reserve Fund Target Amount or (2) the payment date on which the average home price valuation of the outstanding HEI is less than 90% of the starting home valuation as of the cut-off date. During a Class B Trigger Event, the Class B Notes shall not receive any interest or principal payments until the Class A Notes are fully paid down.

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

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
-- Rating and Monitoring U.S. Reverse Mortgage Securitizations (Appendix 3: Home Equity Investments Methodology) (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.

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
-- 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
-- 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.