DBRS Morningstar Assigns Ratings to CFMT 2020-HB3

DBRS, Inc. (DBRS Morningstar) assigned ratings to the Asset-Backed Notes, Series 2020-2 (the Notes) issued by CFMT 2020-HB3:

-- $347.4 million Class A at AAA (sf)
-- $20.8 million Class M1 at AA (sf)
-- $20.0 million Class M2 at A (sf)
-- $17.1 million Class M3 at BBB (sf)
-- $14.2 million Class M4 at BB (sf)

Our affiliate rating agency, Morningstar Credit Ratings, LLC (MCR), assigned preliminary ratings on these certificates on May 7th, 2020. In connection with the ongoing consolidation of DBRS Morningstar and MCR, MCR previously announced that it had placed its outstanding ratings of these certificates Under Review–Analytical Integration Review. Upon issuance of DBRS Morningstar’s final ratings on these certificates, MCR has today withdrawn its outstanding preliminary ratings. In accordance with MCR’s engagement letter covering this transaction, upon withdrawal of MCR’s outstanding preliminary ratings, the DBRS Morningstar final ratings will become the successor ratings to the withdrawn preliminary MCR ratings. Information about the preliminary MCR ratings can be found at www.morningstar.com/learn/dbrs.

The AAA (sf) rating on the Class A notes reflects 23.67% of credit enhancement provided by subordinated notes in the pool. The AA (sf), A (sf), BBB (sf), and BB (sf) ratings reflect 19.10%, 14.70%, 10.95%, and 7.83% of credit enhancement, respectively.

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

This securitization is a portfolio of nonperforming home equity conversion mortgage reverse mortgage loans funded by the issuance of the Notes. The Notes are backed by 1,911 loans with a total principal balance of $455,117,898 as of the Cut-Off Date (March 31, 2020).

These loans are secured by first liens typically on single-family residential properties, condominiums, multifamily (two- to four-family) properties, manufactured homes, and planned unit developments. The loans were originated between 1998 and 2011. Of the total loans, 1,863 are floating rate (96.2% of balance) with a 3.0% current coupon. The remaining 48 loans are fixed (3.8% of balance), with a 5.6% weighted-average coupon (WAC), bringing the entire collateral pool to a 3.1% WAC.

All the loans in this transaction are nonperforming (i.e., inactive) loans. There are 759 loans that are referred for foreclosure (45.0% of balance), 137 are in bankruptcy status (6.4%), 296 are called due (16.3%), 242 are real estate owned (11.2%), and the remaining 477 (21.1%) are in default. However all these loans are insured by the United States Department of Housing and Urban Development (HUD), and this insurance acts to mitigate losses from uninsured loans. Because the insurance supplements the home value, the industry metric for this collateral is not a loan-to-value ratio (LTV) but rather the weighted-average (WA) effective LTV adjusted for HUD insurance, which is 57.0% for these loans. The WA LTV is calculated by dividing the unpaid principal balance by the maximum claim amount and the asset value.

The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (Class A notes) have been reduced to zero. This structure provides credit enhancement in the form of subordinate classes and reduces the effect of realized losses. These features increase the likelihood that holders of the most senior class of notes will receive regular distributions of interest and/or principal. All note classes have available funds caps.

Typically, the sponsor or a majority-owned affiliate of the sponsor will retain a vertical or horizontal residual interest of at least 5% of the fair value of the notes, including mezzanine and/or interest-only notes, to satisfy credit risk-retention rules. The seller, as sponsor, has determined that it is not required to retain credit risk under the U.S. risk retention requirements for asset-backed securities set forth in section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the final regulations related thereto in connection with this transaction because this transaction is collateralized solely by (i) residential mortgage loan assets, which are insured or guaranteed (in whole or in part) as to the payment of principal and interest by the United States or an agency of the United States and (ii) servicing assets related thereto.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is U.S. Reverse Mortgage Securitization Ratings Methodology (May 8, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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