Morningstar DBRS Assigns Provisional Credit Ratings to Mello Warehouse Securitization Trust 2025-1

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to Mello Warehouse Securitization Notes, Series 2025-1 (the Notes) to be issued by Mello Warehouse Securitization Trust 2025-1 (MWST 2025-1) as follows:

-- $201.0 million Class A at (P) AAA (sf)
-- $3.3 million Class B at (P) AA (sf)
-- $31.5 million Class C at (P) A (sf)
-- $28.1 million Class D at (P) BBB (sf)
-- $24.2 million Class E at (P) B (sf)
-- $12.0 million Class F at (P) B (sf)

The (P) AAA (sf) credit rating reflects 33.00% of credit enhancement provided by subordinated notes. The (P) AA (sf), (P) A (sf), and (P) BBB (sf) credit ratings reflect 31.90%, 21.40%, and 12.05% of credit enhancement, respectively. The (P) B (sf) credit ratings on the Class E and Class F Notes reflect the Long-Term Issuer Rating of the Repo Guarantor.

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

The securitization is backed by a three-year revolving warehouse facility and funded by the issuance of the Notes.

The warehouse facility will be sponsored by loanDepot.com, LLC (loanDepot) and consists of a revolving pool of first-lien, fixed- or adjustable-rate eligible mortgage loans originated by loanDepot in accordance with the purchase criteria of Fannie Mae or Freddie Mac or in accordance with the criteria of Ginnie Mae for the guarantee of securities backed by mortgage loans. The characteristics of the revolving pool include a minimum weighted-average (WA) FICO score of 720 and a maximum WA loan-to-value ratio of 85.0%.

All the mortgage loans in this warehouse facility may be originated with electronic contracts. The electronic contracts will be held in an electronic vault or in some manner intended to satisfy the requirements to establish control of a transferable record pursuant to the requirements under E-SIGN and Uniform Electronic Transactions Act.

This transaction is the 11th warehouse securitization sponsored by loanDepot. Only one of the previously issued securitizations is outstanding and the remaining nine have paid off.

U.S. Bank National Association (rated AA with a Stable trend by Morningstar DBRS) will act as the Standby Servicer and Securities Intermediary. U.S. Bank Trust Company, National Association (rated AA with a Stable trend by Morningstar DBRS) will act as Indenture Trustee, Note Calculation Agent, and Collateral Agent. Wilmington Savings Fund Society, FSB will serve as the Owner Trustee, and Deutsche Bank National Trust Company will serve as the Mortgage Loan Custodian.

The Repo Buyer (MWST 2025-1) will enter into a master repurchase agreement (MRA) with the Repo Seller (loanDepot) and the Collateral Agent. The MRA will provide for the transfer by the Repo Seller, against the transfer of the purchase price by the Repo Buyer, of eligible mortgage loans, with a simultaneous agreement by the Repo Buyer to transfer such purchased mortgage loans to the Repo Seller against the transfer of the repurchase price.

The Repo Seller will repurchase all purchased mortgage loans no later than 30 days following the related purchase date. However, such loans will automatically be purchased again by the Repo Buyer unless (1) such the loan has already been in the facility for more than 120 days in the aggregate (whether or not consecutive), (2) the loan is purchased by a takeout investor, (3) the loan ceases to be an eligible mortgage loan, or (4) at the expiration of the facility. If any purchased loan exits this transaction and the Repo Seller has not exercised its prepayment option, the Repo Seller will be required to transfer one or more additional eligible mortgage loans and/or cash in exchange for the purchased mortgage loans that have been reacquired by the Repo Seller.

The aggregate principal balance of all purchased mortgage loans pledged as collateral plus amounts on deposit in the Repo Buyer's account will at all times be at least equal to the outstanding aggregate balance of the Notes. The minimum amount of eligible mortgage loans purchased by the Repo Buyer will be $30,000,000.

The MRA will terminate on the earlier of (1) April 10, 2028, (2) the Repo Seller exercising its right to optional prepayment in full, or (3) the date of the occurrence of a repo event of default.

During the revolving period, the Repo Seller will be required to make interest payments to the Notes and additionally post cash or additional eligible mortgage loans to meet any margin deficit. In general, it is expected that the Notes will not receive payments of principal until the end of the revolving period unless the Repo Seller chooses to exercise an optional prepayment. If the Repo Seller defaults under the MRA then the source of interest and principal payments to the Notes is expected to be the purchased mortgage loans that remain in the facility.

If an event of default occurs and it has not been waived, the Indenture Trustee will be required to conduct one or more auctions over a four-month period to sell the collateral. The Trustee is not allowed to sell the collateral unless liquation proceeds are adequate to make the Class A, Class B, Class C, Class D, and Class E Notes whole (minimum sale price). If the collateral is not sold, then collections from the purchased mortgages are used to make payments to the Notes. Post default, the transaction employs a sequential-payment structure.

LD Holdings Group LLC (LD Holdings), rated B with a Stable trend by Morningstar DBRS, will serve as Repo Guarantor in this transaction. Please refer to the press release "Morningstar DBRS Confirms loanDepot, Inc. Long-Term Issuer Rating of B With a Stable Trend," published September 19, 2024, regarding LD Holdings' Long-Term Issuer Rating. LD Holdings is a holding company that owns majority equity interest in loanDepot and several other affiliated businesses operating in the broader real estate and mortgage sectors. As a Repo Guarantor, LD Holdings will guaranty all the payment obligations of Repo Seller under the MRA. For this transaction, the ratings assigned to the Notes are the higher of (1) the Repo Guarantor's Long-Term Issuer Rating and (2) the ratings of the Notes solely based on the strength of the mortgage loans backing the Notes. At the end of the revolving period, if the Repo Guarantor does not satisfy its obligations, then the ratings of the Notes will be evaluated only on the strength of the mortgage loans backing the Notes. As of the Closing Date, the credit ratings on the Class E and Class F Notes will be based on the Long-Term Issuer Rating of the Repo Guarantor.

The coupon rates for the Notes are based on the one-month term Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available, please see the Private Placement Memorandum (PPM) for more details.

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. On February 17, 2025, however, the OFR issued a statement of their support for recently introduced legislation in the Maryland state senate to clarify that a person, including a passive trust, would not need to be licensed as an Installment Lender or a Mortgage Lender so long as the person does not originate, broker, make, or fund mortgage loans or service mortgage loans for others (including by holding mortgage servicing rights). Such legislation also affirmatively indicated that non-consumer mortgage loans are not subject to the initial January 10, 2025, regulation. Additionally, on February 18, 2025, the OFR published updated guidance that pushes back the current enforcement compliance date to July 6, 2025. In a situation where the proposed legislation does not become law and the Issuer fails to obtain the appropriate Maryland licenses, it 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.

No more than 5% of the purchased mortgage loans will be secured by mortgaged properties located in Maryland. While the ultimate resolution of this regulation is still unclear, in a sensitivity analysis, Morningstar DBRS ran an additional scenario assuming no recoveries given default on 5% of the pool.

The credit ratings reflect transactional strengths that include the following:
-- Well-qualified borrowers;
-- Ongoing third-party due diligence;
-- Standby servicer;
-- Experienced loan custodian; and
-- Margin maintenance.

The transaction also includes the following challenges:
-- Wet loans;
-- Limited scope of third-party due diligence; and
-- Representations and warranties framework.

Morningstar DBRS' credit rating on the Notes addresses 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 and the related Note Balance.

Morningstar DBRS' credit rating does 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 Basis Risk Shortfall Amount based on its occurrence of a Repo Trigger Event or the occurrence and continuance of an Indenture Event of Default

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 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 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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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 (March 27, 2025), https://dbrs.morningstar.com/research/450750
-- 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
-- Global Structured Finance Flow-Through Ratings (December 12, 2024), https://dbrs.morningstar.com/research/444530
-- RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model (Version 1.3.29.0)
https://dbrs.morningstar.com/research/445477

A description of how Morningstar DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.