Fitch Ratings has assigned expected ratings to the residential mortgage-backed notes issued by
RATING ACTIONS
Entity / Debt
Rating
A-1
LT
Expected Rating
A-2
LT
AA(EXP)sf
Expected Rating
A-3
LT
A(EXP)sf
Expected Rating
A-IO-S
LT
NR(EXP)sf
Expected Rating
B-1
LT
NR(EXP)sf
Expected Rating
B-2
LT
NR(EXP)sf
Expected Rating
B-3
LT
NR(EXP)sf
Expected Rating
M-1
LT
BBB-(EXP)sf
Expected Rating
XS
LT
NR(EXP)sf
Expected Rating
Page
of 1
VIEW ADDITIONAL RATING DETAILS
Transaction Summary
Fitch expects to rate the residential mortgage-backed notes to be issued by
The notes are secured by mortgage loans originated by various originators and acquired by the sellers. Of the loans in the pool, 64.6% are designated as nonqualified mortgage (non-QM), 1.1% as rebuttable presumption and the remaining 34.3% are investment properties not subject to the Ability-to-Repay (ATR) Rule.
Distributions of principal and interest (P&I) and loss allocations are based on a modified sequential payment structure. The transaction has a stop advance feature where the P&I advancing party will advance delinquent P&I for up to 90 days.
KEY RATING DRIVERS
Updated Sustainable Home Prices (Negative): Due to Fitch's updated view on sustainable home prices, Fitch views the home price values of this pool as 8.7% above a long-term sustainable level (versus 10.5% on a national level as of
Non-Prime Credit Quality (Mixed): The collateral consists of 5-, 7-, 10-year hybrid adjustable-rate loans and 15-, 30- and 40-year fixed-rate loans. Adjustable-rate loans comprise 28.6% of the pool as calculated by Fitch, which includes 16.5% DSCR loans with a default interest rate feature. Of the loans, 19.1% are interest-only (IO) loans and the remaining 80.9% are fully amortizing loans. The pool is seasoned approximately seven months in aggregate, as calculated by Fitch. The borrowers in this pool have a relatively strong credit profile with a 729 weighted average model FICO, 44.0% model debt-to-income ratio (DTI), and moderate leverage of 79.0% sustainable loan to value ratio (sLTV).
Approximately 6.0% of the loans have experienced a delinquency in the past 24 months and 1.6% of the loans are currently 30 days delinquent; 1.4% of the loans in the pool were underwritten to foreign national borrowers. The pool characteristics resemble recent non-prime collateral and, therefore, the pool was analyzed using Fitch's non-prime model.
Alternative Documentation Loans (Negative): For approximately 92.1% of the loans, alternative documentation was used to underwrite the loans. Of these loans, 42.1% were underwritten to a bank statement program to verify income, which is not consistent with Appendix Q standards or Fitch's view of a full documentation program. To reflect the additional risk, Fitch increases the probability of default (PD) by 1.5x on the bank statement loans. Besides loans underwritten to a bank statement program, 22.9% are a DSCR product, 8.1% are a written verification of employment (WVOE) product, 14.2% are P&L loans and 1.5% comprise an asset depletion product.
Modified Sequential Payment Structure with Limited Advancing (Mixed): The structure distributes principal pro rata among the senior notes while locking out the subordinate classes from principal payments until the senior classes are paid off. If a delinquency trigger event or a cumulative loss trigger event occurs in a given period, principal will be distributed sequentially to class A-1, A-2 and A-3 notes until each class balance is reduced to zero.
The structure includes a step-up coupon feature where the fixed interest rate for classes A-1, A-2 and A-3 will increase by 100 bps on the
Advances of delinquent P&I will be made on the mortgage loans for the first 90 days of delinquency, to the extent such advances are deemed recoverable. If the P&I advancing parties fail to make required advances, the master servicer,
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
The defined negative rating sensitivity analysis demonstrates how the ratings would react to steeper market value declines (MVDs) at the national level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0%, in addition to the model-projected 40.7% at 'AAAsf'. The analysis indicates that there is some potential rating migration with higher MVDs for all rated classes, compared with the model projection. Specifically, a 10% additional decline in home prices would lower all rated classes by one full category.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The defined positive rating sensitivity analysis demonstrates how the ratings would react to positive home price growth of 10% with no assumed overvaluation. Excluding the senior class, which is already rated 'AAAsf', the analysis indicates there is potential positive rating migration for all the rated classes. Specifically, a 10% gain in home prices would result in a full category upgrade for the rated class excluding those being assigned ratings of 'AAAsf'.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
Additional information is available on www.fitchratings.com
(C) 2023 Electronic News Publishing, source