Morningstar DBRS Assigns Provisional Credit Ratings to CFMT 2025-HB16, LLC

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Asset-Backed Notes, Series 2025-1 (the Notes) to be issued by CFMT 2025-HB16, LLC as follows:

-- $256.5 million Class A at (P) AAA (sf)
-- $42.7 million Class M1 at(P) AA (low) (sf)
-- $30.2 million Class M2 at (P) A (low) (sf)
-- $28.0 million Class M3 at (P) BBB (low) (sf)
-- $20.3 million Class M4 at (P) BB (low) (sf)
-- $25.0 million Class M5 at (P) B (sf)

The AAA (sf) rating reflects 35.5% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 24.7%, 17.1%, 10.1%, 5.0%, and -1.3% of credit enhancement, respectively.

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

Lenders typically offer reverse mortgage loans to people who are at least 62 years old. Through reverse mortgage loans, borrowers have access to home equity through a lump sum amount or a stream of payments without periodically repaying principal or interest, allowing the loan balance to accumulate over time until a maturity event occurs. Loan repayment is required (1) if the borrower dies, (2) if the borrower sells the related residence, (3) if the borrower no longer occupies the related residence for a period (usually a year), (4) if it is no longer the borrower's primary residence, (5) if a tax or insurance default occurs, or (6) if the borrower fails to properly maintain the related residence. In addition, borrowers must be current on any homeowner's association dues, if applicable. Reverse mortgages are typically nonrecourse; borrowers don't have to provide additional assets in cases where the outstanding loan amount exceeds the property's value (the crossover point). As a result, liquidation proceeds will fall below the loan amount in cases where the outstanding balance reaches the crossover point, contributing to higher loss severities for these loans.

As of the Cut-Off Date (January 31, 2025), the collateral consists of approximately $397.6 million in unpaid principal balance (UPB) from 1,141 nonperforming home equity conversion mortgage (HECM) reverse mortgage loans and real estate owned (REO) properties secured by first liens typically on single-family residential properties, condominiums, multifamily (two- to four-family) properties, manufactured homes, and planned unit developments. The mortgage assets were originated between 1999 and 2017. Of the total assets, 369 have a fixed interest rate (39.08% of the balance), with a 5.2% weighted-average coupon (WAC). The remaining 772 assets have floating-rate interest (60.92% of the balance) with a 6.5% WAC, bringing the entire collateral pool to a 6.0% WAC.

All the mortgage assets in this transaction are nonperforming (i.e., inactive) assets. There are 522 mortgage assets in a foreclosure process (53.9% of balance), 260 are in default (16.4%), 83 are in bankruptcy (7.56%), 127 are called due (9.9%), and 149 are REO (12.27%). However, all these assets are insured by the U.S. Department of Housing and Urban Development (HUD), and this insurance acts to mitigate losses vis-à-vis uninsured loans. See discussion in the Analysis section below. Because the insurance supplements the home value, the industry metric for this collateral is not the loan-to-value ratio (LTV) but rather the weighted-average (WA) effective LTV adjusted for HUD insurance, which is 59.49% for these assets. The WA LTV is calculated by dividing the UPB by the maximum claim amount plus the asset value.

The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior Notes (Class A Notes) have been reduced to zero. This structure provides credit enhancement in the form of subordinate classes and reduces the effect of realized losses. These features increase the likelihood that holders of the most senior class of Notes will receive regular distributions of interest and/or principal. All Note classes have available fund caps.

Classes M1, M2, M3, M4, M5, (together, the Class M Notes) have principal lockout terms insofar as they are not entitled to principal payments prior to a Redemption event, unless an Acceleration Event or Auction Failure Event occurs. Available cash will be trapped until these dates, at which stage the Notes will start to receive payments. Note that the Morningstar DBRS cash flow as it pertains to each note models the first payment being received after these dates for each of the respective Notes; hence, at the time of issuance, these rules are not likely to affect the natural cash flow waterfall.

A failure to pay the Notes in full on the Mandatory Call Date (September 2027) will trigger a mandatory auction of all assets. If the auction fails to elicit sufficient proceeds to pay off the Notes, another auction will follow every three months for up to a year after the Mandatory Call Date. If these have failed to pay off the Notes, this is deemed an Auction Failure, and subsequent auctions will proceed every six months.

If the Class M5 Notes have not been redeemed or paid in full by the Mandatory Call Date, they will accrue additional accrued amounts. Morningstar DBRS does not rate these additional accrued amounts.

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 Amounts. In addition, the associated financial obligations for the Class A, M1, M2, M3, and M4 Notes include the related Cap Carryover and Interest Payment Amounts.

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, the credit ratings on the Notes do not address Additional Accrued Amounts based on their 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.

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 (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 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.
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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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.