DBRS, Inc. (DBRS Morningstar) finalized its provisional credit ratings on the following Mortgage-Backed Notes, Series 2023-SRM1 (the Notes) issued by Brean Asset Backed Securities Trust 2023-SRM1:
— $109.3 million Class A at AAA (sf)
— $11.5 million Class M1 at AA (sf)
— $11.5 million Class M2 at A (sf)
— $15.7 million Class M3 at BBB (sf)
— $15.8 million Class M4 at BB (sf)
— $15.7 million Class M5 at B (sf)
The AAA (sf) credit rating reflects credit enhancement of 46.3% for Class A, AA (sf) credit rating reflects credit enhancement of 40.7% for Class M1, A (sf) credit rating reflects credit enhancement of 35.1% for Class M2, BBB (sf) credit rating reflects credit enhancement of 27.3% for Class M3, BB (sf) credit rating reflects credit enhancement of 19.6% for Class M4, and B (sf) credit rating reflects credit enhancement of 11.9% for Class M5.
Other than the specified classes above, DBRS Morningstar does 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 a period of 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 August 31, 2023, cut-off date, the collateral has approximately $203.70 million in current unpaid principal balance (UPB) from 189 active and 46 inactive reverse mortgage loans secured by first liens on single-family residential properties, condominiums, multifamily (two- to four-family) properties, and co-operatives. The loans were all originated in 2006 and 2007 and were originally securitized in the SASCO 2007-RM1 transaction. All loans in this pool are floating-rate assets with an 8.79% weighted-average coupon.
As of the cut-off date, the loans in this transaction are both performing and nonperforming (i.e., active and inactive). There are 189 performing loans, representing 79.85% of the total UPB. As for the 46 nonperforming loans, 19 loans are referred for foreclosure or in foreclosure (9.62% of the balance), eight are in default (2.50%), seven are liquidated/held for sale (3.21%), and 12 are called due following recent maturity (4.82%). None of the loans are insured by the United States Department of Housing and Urban Development (HUD); therefore, inactive loans (including the currently inactive loans) do not benefit from the typical insurance claim that HUD-insured loans experience.
The transaction uses a structure in which cash distributions are made sequentially to each rated note until the rated amounts with respect to such notes are paid off. No subordinate note shall receive any payments until the balance of senior notes has been reduced to zero.
DBRS Morningstar’s 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 Amount and Interest Accrual Amounts.
DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar 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, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).
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 (July 17, 2023; https://www.dbrsmorningstar.com/research/417277).
Other methodologies referenced in this transaction are listed at the end of this press release.
The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.
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.
DBRS Morningstar 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.
The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].
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The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
— Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023),
— Legal Criteria for U.S. Structured Finance (December 7, 2022),
— Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023),
— Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023),
— Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023),
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].