DBRS Morningstar Finalizes Provisional Ratings on RMF Buyout Issuance Trust 2021-HB1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Asset-Backed Notes, Series 2021-HB1 issued by RMF Buyout Issuance Trust 2021-HB1:

-- $353.5 million Class A at AAA (sf)
-- $43.4 million Class M1 at AA (low) (sf)
-- $32.9 million Class M2 at A (low) (sf)
-- $32.2 million Class M3 at BBB (low) (sf)
-- $31.6 million Class M4 at BB (low) (sf)
-- $21.2 million Class M5 at B (sf)

The AAA (sf) rating reflects 66.6% of cumulative advance rate. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 74.7%, 80.9%, 87.0%, 93.0%, and 96.9% 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 Cut-Off Date (September 30, 2021), the collateral has approximately $531 million in unpaid principal balance (UPB) from 2,081 nonperforming home equity conversion mortgage reverse mortgage assets secured by first liens typically on single-family residential properties, condominiums, multifamily (two- to four-family) properties, manufactured homes, and planned unit developments. The assets were originated between May 2005 and August 2021. Of the total loans, 701 have a fixed interest rate (40.5% of the balance), with a 5.20% weighted-average coupon (WAC). The remaining 1,380 loans have floating-rate interest (59.5% of the balance) with a 2.08% WAC, bringing the entire collateral pool to a 3.34% WAC.

As of the Cut-Off Date, all the loans in this transaction are nonperforming (i.e., inactive) loans. Among the nonperforming loans there are 1,346 loans that are in the foreclosure process (67.1% of the balance), 91 are in bankruptcy status (5.4%), 104 are called due following recent maturity (5.1%), 209 are real estate owned (9.1%), and the remaining 331 (13.3%) are in default. However, all these loans are insured by the United States Department of Housing and Urban Development (HUD), which mitigates losses vis-à-vis uninsured loans. Because the insurance supplements the home value, the industry metric for this collateral is not the loan-to-value ratio (LTV) but rather the WA effective LTV adjusted for HUD insurance, which is 57.8% for the loans in this pool. To calculate the WA LTV, DBRS Morningstar divides the UPB 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 note has 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 classes of notes will receive regular distributions of interest and/or principal. All note classes except M6 pay current interest and have available funds caps.

The Class M Notes have principal lockout terms as they are not entitled to principal payments until the Senior Notes have been paid off.

The Notes are subject to a mandatory call date on December 2024 for Class A, September 2025 for Class M1, and November 2025 for the Classes M2, M3, M4, M5, and M6 Notes. Failure of the deal to be called by this date will be considered an Event of Default. If there is an Event of Default, the subordinate bonds will cease to receive interest and the interested will be directed to the Senior Notes. Note that at the time of issuance, DBRS Morningstar does not expect these rules to affect the natural cash flow waterfall.

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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