DBRS Morningstar Finalizes Provisional Ratings on Cascade Funding Mortgage Trust 2022-RM4

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following Asset-Backed Notes, Series 2022-RM4 issued by Cascade Funding Mortgage Trust 2022-RM4 (the Issuer):

-- $74.8 million Class A at AAA (sf)
-- $27.1 million Class M-1 at AA (low) (sf)
-- $19.9 million Class M-2 at A (low) (sf)
-- $18.9 million Class M-3 at BBB (low) (sf)
-- $18.9 million Class M-4 at BB (low) (sf)
-- $12.8 million Class M-5 at B (sf)

The AAA (sf) rating reflects 69.6% of credit enhancement. The AA (low) (sf), A (low) (sf), BBB (low) (sf), BB (low) (sf), and B (sf) ratings reflect 58.6%, 50.5%, 42.8%, 35.1%, and 29.9% of credit enhancement, 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 February 28, 2022, cut-off date, the collateral has approximately $246.0 million in unpaid principal balance from 270 active and non-active reverse mortgage loans 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 1997 and 2017. Of the total loans, 53 have a fixed interest rate (24.9% of the balance), with a 9.01% weighted-average coupon (WAC). The remaining 193 loans are floating-rate interest (75.1% of the balance) with a 4.06% WAC, bringing the entire collateral pool to a 5.29% WAC.

The transaction uses a sequential structure. No subordinate note shall receive any principal payments until the senior notes (the 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 coupon caps at 2%.

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.

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 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.

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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