Morningstar DBRS Finalizes Its Provisional Ratings Credit Ratings on SOLVE 2025-HEC1

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following classes of notes (together, the Notes) issued by SOLVE 2025-HEC1:

-- $112.1 million Asset-Backed Notes, Series 2025-HEC1, Class A at BBB (sf)
-- $18.9 million Asset-Backed Notes, Series 2025-HEC1, Class B at BB (sf)

The BBB (sf) credit rating reflects a cumulative advance rate of 56.5 % for Class A and the BB (sf) credit rating reflects a cumulative advance rate of 66.1 % 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 to access 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). With an HEI, a homeowner receives an upfront cash payment (an Investment Amount) and, in exchange, gives an investor (i.e., an originator) a stake in the property. The homeowner retains sole right of occupancy at 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.

Like reverse mortgage loans, the HEI underwriting approach is asset based, meaning that there is greater emphasis on the underlying property's value and the amount of home equity than on the homeowner's credit quality. The property value is the main predictor of investment return because it is the 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 subject to 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, if applicable.

As of the cut-off date, May 31, 2025, 116 contracts in the transaction were first-lien contracts, representing $10.54 million in original investment payments; 786 were second-lien contracts, representing $83.65 million in original investment payments; 82 were third-lien contracts, representing $10.24 million in original investment payments; and five were fourth-lien contracts, representing $0.34 million in original investment payments.

Of the pool, 10.06% of the contracts by original investment amount are first lien with a weighted-average (WA) option percentage of 58.74%; 79.84% are second-lien contracts with a WA option percentage of 57.28%; 9.77% are third-lien contracts with a WA option percentage of 61.07%; and the remaining 0.33% are fourth-lien contracts with a WA option percentage of 63.46%. This brings the entire transaction's WA option percentage to 57.82%. The current unadjusted loan-to-value ratio of the pool is 36.69% (i.e., of senior liens ahead of the contracts). At the cut-off date, the pool had a WA original option-to-value ratio of 18.47% and a WA original loan-plus-option-to-value ratio of 61.79%.

The transaction uses a sequential structure in which cash distributions are first made to reduce the interest amount and cap carryover amount on Class A. Payments are then made to the note amount on Class A until such notes reduce to zero followed by payments to reduce the additional accrued amounts for Class A that accrued on any earlier payment date but have not been paid until the additional accrued amounts reduce to zero. Class B are full accrual notes and will not be entitled to receive any payments of interest or principal until the Class A and Class A additional accrued amounts have been paid in full. Payments will not be made to Class B unless and until an optional redemption, auction proceeds redemption, or indenture default. Upon an optional redemption, auction proceeds redemption, or indenture default, payments are made to the aggregate note amount on the outstanding Notes.

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 Class A include the related cap carryover and interest 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's 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 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 (May 16, 2025), https://dbrs.morningstar.com/research/454196.

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.

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

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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 (March 27, 2025),
https://dbrs.morningstar.com/research/450750
-- 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.