Morningstar DBRS Assigns Provisional Credit Ratings to BRAVO Residential Funding Trust 2025-NQM4

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to the Mortgage-Backed Notes, Series 2025-NQM4 (the Notes) to be issued by BRAVO Residential Funding Trust 2025-NQM4 (the Trust) as follows:

-- $294.6 million Class A-1A at (P) AAA (sf)
-- $48.9 million Class A-1B at (P) AAA (sf)
-- $343.5 million Class A-1 at (P) AAA (sf)
-- $32.5 million Class A-2 at (P) AA (high) (sf)
-- $37.6 million Class A-3 at (P) A (high) (sf)
-- $27.4 million Class M-1 at (P) BBB (high) (sf)
-- $17.3 million Class B-1A at (P) BBB (low) (sf)
-- $14.2 million Class B-1B at (P) BB (low) (sf)
-- $31.5 million Class B-1 at (P) BB (low) (sf)
-- $8.8 million Class B-2 at (P) B (low) (sf)

Class A-1 and B1 are exchangeable notes while Class A-1A, A-1B, B-1A, and B-1B are initial exchangeable notes. These classes can be exchanged in combinations as specified in the offering documents.

The (P) AAA (sf) credit rating on the Class A-1A and A-1B Notes reflect 39.70% and 29.70% of credit enhancement provided by subordinated Notes. The (P) AA (high) (sf), (P) A (high) (sf), (P) BBB (high) (sf), (P) BBB (low) (sf), (P) BB (low) (sf), and B (low) credit ratings reflect 23.05%, 15.35%, 9.75%, 6.20%, 3.30%, and 1.50% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Mortgage-Backed Notes, Series 2025-NQM4 (the Notes). The Notes are backed by 886 loans with a total principal balance of approximately $488,579,288 as of the Cut-Off Date (March 31, 2025).

The pool is, on average, five months seasoned with loan ages ranging from two to eleven months. Arc Home Loans LLC originated 23.2% and the remaining 76.8% were originated by various originators, each comprising less than 10% of the mortgage loans. Approximately 52.6% of the loans will be serviced by Citadel Servicing Corporation, and47.4% of the loans will be serviced by Nationstar Mortgage LLC d/b/a Rushmore Servicing. ServiceMac, LLC (ServiceMac) will sub-service all of the Citadel serviced loans.

Nationstar Mortgage LLC (Nationstar) will act as Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by Morningstar DBRS), will act as Indenture Trustee, Paying Agent, and Owner Trustee. Computershare Trust Company, N.A. (rated BBB with a Stable trend by Morningstar DBRS) will act as Custodian.

As of the Cut-Off Date, 99.7% of the loans in the pool are contractually current according to the Mortgage Bankers Association (MBA) delinquency calculation method.

In accordance with the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) rules, 49.9% of the loans by balance are designated as non-QM. Approximately 40.3% of the loans in the pool made to investors for business purposes or were underwritten by a Community Development Financial Institution (CDFI) and are exempt from the CFPB Ability-to-Repay (ATR) and QM rules. Remaining loans subject to the ATR rules are designated as QM Safe Harbor (9.3%), and QM Rebuttable Presumption (1.3%) by UPB.

There will be no advancing of delinquent principal or interest on any mortgage loan by the servicers or any other party to the transaction; however, each servicer is obligated to make advances in respect of taxes and insurance, the cost of preservation, restoration, and protection of mortgaged properties and any enforcement or judicial proceedings, including foreclosures and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Sponsor or a majority-owned affiliate of the Sponsor will acquire and intends to retain an eligible horizontal residual interest consisting of a portion of the Class B-3 Notes and 100% of the Class XS Notes, collectively representing at least 5.0% of the aggregate fair value of the Notes (other than the Class SA, and Class R Notes) to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The holder of the Trust Certificates may, at its option, on or after the earlier of (1) the payment date in April 2028 or (2) the date on which the balance of mortgage loans and real estate owned (REO) properties falls to or below 30% of the loan balance as of the Cut-Off Date (Optional Redemption Date), redeem the Notes at the optional termination price described in the transaction documents.

The Depositor, at its option, may purchase any mortgage loan that is 90 days or more delinquent under the Mortgage Bankers Association (MBA) method at the repurchase price (Optional Purchase) described in the transaction documents. The total balance of such loans purchased by the Depositor will not exceed 10% of the Cut-Off Date balance.

Issuer may require the Seller to repurchase loans that become delinquent in the first three monthly payments following the date of acquisition. Such loans will be repurchased at the related repurchase price.

The transaction's cash flow structure is generally similar to that of other non-QM securitizations. The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). In the case of a Credit Event, principal proceeds will be allocated to cover interest shortfalls on the Class A-1 and then in reduction of the Class A-1 note balance, before a similar allocation of funds to the Class A-2 (IPIP). For the Class A-3 Notes (only after a Credit Event) and for the mezzanine and subordinate classes of notes (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior notes have been paid off in full. Also, the excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts due to Class A-1A, A-1B, A-2, A-3, M-1, B-1A and B-1B (if applicable).

Of note, the Class A-1A, A-1B, A-2, and A-3 Notes coupon rates step up by 100 basis points on and after the payment date in May 2029. Interest and principal otherwise payable to the Class B-3 Notes as accrued and unpaid interest may be used to pay the Class A-1A, A-1B, A-2, and A-3 Notes Cap Carryover Amounts after the Class A coupons step up.

Natural Disasters/Wildfires
The mortgage pool contains loans secured by mortgage properties that are located within certain disaster areas (such as those impacted by the Greater Los Angeles wildfires). The Sponsor of the transaction has informed Morningstar DBRS that the servicer has ordered (and intends to order) property damage inspections (PDI) for any property located in a known disaster zone prior to the transactions closing date. Loans secured by properties known to be materially damaged will not be included in the final transaction collateral pool. To the extent that a PDI was ordered prior to closing, but notice of material damages were not available until after closing, the sponsor will repurchase the related loan/loans within 90 days of notification.

The transaction documents also include representations and warranties regarding the property conditions, which state that the properties have not suffered damage that would have a material and adverse impact on the values of the properties (including events such as fire, windstorm, flood, earth movement, and hurricane).

Maryland Consumer Purpose Loans
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 0.6% of the pool (7 loans) are Maryland consumer-purpose mortgage loans. While the ultimate resolution of this regulation is still unclear, Morningstar DBRS, in its analysis, considered a scenario in which these properties had no recoveries given default.

The credit ratings reflect transactional strengths that include the following:
-- Robust loan attributes and pool composition;
-- Compliance with the ATR rules;
-- Improved underwriting standards;
-- Current loan status; and
-- Satisfactory third-party due-diligence review.

The transaction also includes the following challenges:
-- Debt service coverage ratio loans;
-- Certain nonprime, non-QM, investor loans, and loans to foreign national borrowers;
-- No servicer advances of delinquent principal and interest; and
-- The representations and warranties standard.

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

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 for each of the rated Notes are the related Current Interest, Interest Carryforward Amount, and the related Note Amount.

Morningstar DBRS' credit rating on the Class A-1A, Class, A-1B, Class A-2, and Class A-3 Notes also address the credit risk associated with the increased rate of interest applicable to the Class A-1A, Class, A-1B, Class A-2, and Class A-3 Notes if the Class A-1A, Class A-1B, Class A-2, and Class A-3 Notes remain outstanding on the step-up date (May 2029) in accordance with the applicable transaction document(s).

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 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.

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.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-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 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.
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 1.3.29.0)
https://dbrs.morningstar.com/research/445477

-- 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

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