DBRS Morningstar Finalizes Provisional Ratings on CIM Trust 2023-R2

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the Mortgage-Backed Notes, Series 2023-R2 (the Notes) issued by CIM Trust 2023-R2 (CIM 2023-R2 or the Trust):

-- $364.8 million Class A1 at AAA (sf)
-- $23.9 million Class A2 at AA (sf)
-- $16.8 million Class M1 at A (sf)
-- $12.1 million Class M2 at BBB (sf)
-- $8.1 million Class B1 at BB (sf)
-- $4.0 million Class B2 at B (sf)

The AAA (sf) rating on the Class A1 Notes reflects 18.45% of credit enhancement provided by subordinated notes in the transaction. The AA (sf), A (sf), BBB (sf), BB (sf), and B (sf) ratings reflect 13.10%, 9.35%, 6.65%, 4.85%, and 3.95% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of primarily seasoned performing and reperforming first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 4,343 loans with a total principal balance of $447,383,860 as of the Cut-Off Date (January 31, 2023).

The loans are approximately 167 months seasoned on average.

As of the Cut-Off Date, 97.4% of the pool is current, 2.3% is 30 days delinquent under the Mortgage Bankers Association (MBA) delinquency method, and 0.3% is in bankruptcy. (All except one of the bankruptcy loans are performing.) All loans reported as delinquent because of servicing transfers were treated as current by DBRS Morningstar. Approximately 92.5% and 83.5% of the mortgage loans have been zero times (x) 30 days delinquent for the past 12 months and 24 months, respectively, under the MBA delinquency method.

In the portfolio, 60.3% of the loans are modified. The modifications happened more than two years ago for 79.9% of the modified loans. Within the pool, 1,866 mortgages have non-interest-bearing deferred amounts, which equate to 3.6% of the total principal balance. Unless specified otherwise, all statistics on the mortgage loans in this assessment are based on the current balance, including the applicable non-interest-bearing deferred amounts.

The majority of the pool (82.1%) is exempt from the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules. The loans subject to the ATR rules are designated as QM Safe Harbor (6.6%) and Non-QM (11.3%) by unpaid principal balance.

Fifth Avenue Trust (the Seller) acquired the mortgage loans prior to the Cut-Off Date and, through a wholly owned subsidiary, Funding Depositor LLC (the Depositor), will contribute the loans to the Trust. As the Sponsor, Chimera Investment Corporation (Chimera) or one of its majority-owned affiliates will acquire and retain a 5% eligible horizontal residual interest in the Notes, consisting of a portion of the Class B1 Notes and all of the Class B2, Class B3, Class B4, and Class C Notes, in the aggregate, to satisfy the credit risk retention requirements. Various entities originated and previously serviced the loans through purchases in the secondary market.

Prior to CIM 2023-R2, Chimera had issued 50 seasoned securitizations under the CIM shelf since 2014, all of which were backed by subprime, reperforming, or nonperforming loans. DBRS Morningstar has rated 10 of the previously issued CIM reperforming loan deals. Similar to the CIM 2022-R2 deal, this transaction exhibits much stronger credit characteristics than previously issued transactions under the CIM shelf. DBRS Morningstar reviewed the historical performance of both the rated and unrated transactions issued under the CIM shelf, particularly with respect to the reperforming transactions, which may not have collateral attributes similar to CIM 2023-R2. The reperforming CIM transactions generally have delinquencies and losses in line with expectations for previously distressed assets.

The loans will all be serviced by Fay Servicing, LLC. 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 related 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.

On the earlier of the Payment Date occurring in March 2028, or after the Payment Date when the aggregate note amount of the offered Notes is reduced to 10% of the Closing Date note amount, the Call Option Holder (the Depositor or any successor or assignee) has the option to purchase all of the mortgage loans and any real estate owned (REO) properties at a certain purchase price equal to the unpaid principal balance of the mortgage loans, plus the fair market value of the REO properties and any unpaid expenses and reimbursement amounts.

The transaction employs a sequential-pay cash flow structure. Principal proceeds can be used to cover interest shortfalls on the Notes, but such shortfalls on Class M1 and more subordinate bonds will not be paid from principal proceeds until the Class A1 and Class A2 Notes are retired.

The ratings reflect transactional strengths that include the following:
-- Credit quality relative to reperforming pools,
-- Satisfactory third-party due-diligence review,
-- Structural features,
-- Seasoning, and
-- Current delinquency status.

The transaction also includes the following challenges:
-- Representations and warranties standard,
-- No servicer advances of delinquent principal and interest, and
-- Assignments and endorsements.

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

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology applicable to the ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (March 3, 2023; https://www.dbrsmorningstar.com/research/410473).

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (May 4, 2020),
https://www.dbrsmorningstar.com/research/360574/assessing-us-rmbs-pools-under-the-ability-to-repay-rules
-- Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153/interest-rate-stresses-for-us-structured-finance-transactions
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
https://www.dbrsmorningstar.com/research/366613/third-party-due-diligence-criteria-for-us-rmbs-transactions
-- Representations and Warranties Criteria for U.S. RMBS Transactions (April 22, 2020),
https://www.dbrsmorningstar.com/research/359902/representations-and-warranties-criteria-for-us-rmbs-transactions
-- Legal Criteria for U.S. Structured Finance (December 7, 2022),
https://www.dbrsmorningstar.com/research/407008/legal-criteria-for-us-structured-finance
-- Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
https://www.dbrsmorningstar.com/research/405664/operational-risk-assessment-for-us-rmbs-originators
-- Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),
https://www.dbrsmorningstar.com/research/405665/operational-risk-assessment-for-us-rmbs-servicers

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