DBRS Morningstar Assigns Provisional Ratings to BRAVO Residential Funding Trust 2022-RPL1

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage-Backed Notes, Series 2022-RPL1 (the Notes) to be issued by BRAVO Residential Funding Trust 2022-RPL1 (the Trust):

-- $272.3 million Class A-1 at AAA (sf)
-- $27.8 million Class A-2 at AA (high) (sf)
-- $300.1 million Class A-3 at AA (high) (sf)
-- $322.5 million Class A-4 at A (high) (sf)
-- $342.8 million Class A-5 at BBB (sf)
-- $22.4 million Class M-1 at A (high) (sf)
-- $20.3 million Class M-2 at BBB (sf)
-- $15.3 million Class B-1 at BB (high) (sf)
-- $12.0 million Class B-2 at B (high) (sf)

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

The AAA (sf) rating on the Class A-1 Notes reflects 34.25% of credit enhancement provided by subordinated notes. The AA (high) (sf), A (high) (sf), BBB (sf), BB (high) (sf), and B (high) (sf) ratings reflect 27.55%, 22.15%, 17.25%, 13.55%, and 10.65% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of seasoned reperforming, first-lien, residential mortgages funded by the issuance of the Notes. The Notes are backed by 2,233 loans with a total principal balance of $414,216,726 as of the Cut-Off Date (December 31, 2021).

The portfolio is approximately 187 months seasoned on a weighted-average basis and contains 93.1% modified loans. The modifications happened more than two years ago for 92.1% of the modified loans. Within the pool, 1,356 mortgages have non-interest-bearing deferred amounts, which equate to approximately 10.7% of the total principal balance.

As of the Cut-Off Date, 90.0% of the pool is current, including 63 or 2.3% active bankruptcy loans, and 10.0% is 30 days delinquent, including 14 or 0.5% active bankruptcy loans under the Mortgage Bankers Association (MBA) delinquency method. Approximately 37.1%, 59.2%, and 78.4% of the mortgage loans by balance have been current for the past 24, 12, and six months, respectively, under the MBA delinquency method.

The majority of the pool (99.9%) is not subject to the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. The remaining 0.1% of the pool may be subject to the ATR rules, but a designation was not provided. As such, DBRS Morningstar assumed these loans to be non-QM in its analysis.

PIF Residential Funding II Ltd (the Depositor), an affiliate of Loan Funding Structure III LLC (the Sponsor), will acquire the loans and will contribute them to the Trust. The Sponsor or one of its majority-owned affiliates will acquire and retain a 5% eligible vertical interest in the offered Notes, consisting of 5% of each class to satisfy the credit risk retention requirements.

Rushmore Loan Management Services LLC will service the mortgage loans. For this transaction, the aggregate servicing fee paid from the Trust will be 0.25%.

There will not be any advancing of delinquent principal or interest on any mortgages by the Servicer or any other party to the transaction; however, the Servicer is obligated to make advances in respect of homeowner’s association fees, taxes, and insurance as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.

When the aggregate pool balance is reduced to less than 10% of the balance as of the Cut-Off Date, the holder of the Trust certificates may purchase all of the mortgage loans and real estate owned (REO) properties from the Issuer at a price equal to the sum of principal balance of the mortgage loans; accrued and unpaid interest thereon; the fair market value of REO properties net of liquidation expenses; unpaid servicing advances; and any fees, expenses, or other amounts owed to the transaction parties (optional termination).

The transaction employs a sequential-pay cash flow structure. Principal proceeds and excess interest can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M-1 and more subordinate bonds will not be paid from principal proceeds until the Class A-1 and A-2 Notes are retired.

Coronavirus Pandemic and Forbearance
The Coronavirus Disease (COVID-19) pandemic and the resulting isolation measures have caused an immediate economic contraction, leading to sharp increases in unemployment rates and income reductions for many consumers. Shortly after the onset of the pandemic, DBRS Morningstar saw an increase in delinquencies for many residential mortgage-backed securities (RMBS) asset classes.

Such mortgage delinquencies were mostly in the form of forbearances, which are generally short-term periods of payment relief that may perform very differently from traditional delinquencies. At the onset of the pandemic, the option to forbear mortgage payments was widely available, driving forbearances to an elevated level. When the dust settled, loans with coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low loan-to-value ratios, and acceptable underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending downward, as forbearance periods come to an end for many borrowers.

For more information regarding the economic stress assumed under its baseline scenario, please see the following DBRS Morningstar commentary: “Baseline Macroeconomic Scenarios For Rated Sovereigns December 2021 Update,” dated December 9, 2021.

The ratings reflect transactional strengths that include the following:
-- Seasoning,
-- Clean payment history,
-- Sequential-pay structure
-- Certain aspects of the third-party due-diligence review.

The transaction also includes the following challenges:
-- Representations and warranties standard,
-- No servicer advances of delinquent principal and interest, and
-- Limitations of the third-party due-diligence review.

The full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.

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 RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (April 1, 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.

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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