DBRS Morningstar Finalizes Provisional Ratings on Brean Asset-Backed Securities Trust 2021-RM2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Asset-Backed Notes, Series 2021-2, issued by Brean Asset-Backed Securities Trust 2021-RM2 (BABS 2021-RM2):

-- $202.2 million Class A at AAA (sf)
-- $7.5 million Class M1 at AA (sf)
-- $6.1 million Class M2 at A (sf)
-- $5.5 million Class M3 at BBB (sf)
-- $2.3 million Class M4 at BB (sf)
-- $2.2 million Class M5 at B (sf)

The AAA (sf) rating reflects 110.8% of cumulative advance rate. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 114.9%, 118.3%, 121.3%, 122.5%, and 123.7% of cumulative advance rates, respectively.

Other than the specified classes above, DBRS Morningstar did 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 September 1, 2021, cut-off date, the collateral had approximately $182.5 million in current unpaid principal balance from 167 performing, nonrecourse, fixed-rate jumbo reverse mortgage loans secured by first liens on single-family residential properties, condominiums, townhomes, and multifamily (two- to four-family) properties. The loans were originated in 2021.

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. Interest is capitalized to the note and the senior notes will accrue cap carryover for any interest shortfalls.

The note rate for Class A Notes will reduce to 0.25% if the Home Price Percentage (as measured using the S&P CoreLogic Case-Shiller National Index) declines by 30% or more compared with the value on the cut-off date.

If the notes are not be paid in full or redeemed by the issuer on September 2026, the Expected Repayment Date, the issuer will be required to conduct an auction within 180 calendar days of the Expected Repayment Date to offer all the mortgage assets and use the proceeds, net of fees and expenses due to auction, to be applied to payments to all amounts owed. If the proceeds of the auction are not sufficient to cover all the amounts owed, the issuer will be required to conduct an auction within six months of the previous auction.

If, during any six-month period, the average one month conditional prepayment rate is equal to or greater than 20%, then on such date, 50% of available funds remaining after payment of fees and expenses and interest to the Class A Notes will be deposited into the Refunding Account, which may be used to purchase additional mortgage loans.

For more information regarding rating methodologies and the Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press releases and commentary: “DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19),” dated March 12, 2020; “DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),” dated March 20, 2020; and “Baseline Macroeconomic Scenarios For Rated Sovereigns,” dated September 8, 2021.

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/373262.

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.

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/baseline-macroeconomic-scenarios-application-to-credit-ratings.

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.

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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