DBRS Morningstar Finalizes Provisional Credit Ratings on Brean Asset-Backed Securities Trust 2023-RM7

DBRS, Inc. (DBRS Morningstar) finalized its provisional credit ratings to the following Mortgage-Backed Notes, Series 2023-RM7 (the Notes) issued by Brean Asset-Backed Securities Trust 2023-RM7:

-- $147.6 million Class A1 at AAA (sf)
-- $26.0 million Class A2 at AAA (sf)
-- $173.6 million Class AM at AAA (sf)
-- $7.4 million Class M1 at AA (sf)
-- $1.9 million Class M2 at A (sf)
-- $1.1 million Class M3 at BBB (sf)
-- $5.4 million Class M4 at B (sf)

Class AM is an exchangeable note. This class can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) credit rating reflects 112.6% of cumulative advance rate. The AA (sf), A (sf), BBB (sf), and B (sf) ratings reflect 117.3%, 118.6%,119.3%, and 122.8% of cumulative advance rates, respectively.

Other than the specified classes above, DBRS Morningstar does 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 30, 2023, cut-off date, the collateral has approximately $154.2 million in current unpaid principal balance (UPB) from 298 performing, two in default for insurance, and one in default for occupancy fixed-rate jumbo reverse mortgage loans secured by first liens on single-family residential properties, condominiums, townhomes, multifamily (two- to four-family) properties, cooperatives, planned unit developments, and manufactured homes. About 72.6% of the loans by UPB were originated in 2023, 16.7% in 2022, and the rest between 2021 and 2018. All loans in this pool have a fixed interest rate with a 9.428% weighted-average coupon.

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.

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

If the Notes are not paid in full or redeemed by the issuer on the Expected Repayment Date in November 2028, 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 from 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, on any Payment Date (1) the average one-month conditional prepayment rate over the immediately preceding six-month period is equal to or greater than 25%, or (2) if the average per annum increase in the Case-Shiller Index, or, to the extent the Case-Shiller is no longer published, the Home Price Index, over the immediately preceding 12-month period is less than or equal to 0% 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.

DBRS Morningstar’s credit ratings on the Notes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations for each of the rated Notes are the related Note Amount and Interest Accrual Amounts.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued.

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/416784 (July 4, 2023).

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

The principal methodology applicable to the credit ratings is Rating and Monitoring U.S. Reverse Mortgage Securitizations (July 17, 2023; https://www.dbrsmorningstar.com/research/417277).

Other methodologies referenced in this transaction are listed at the end of this press release.

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.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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.
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New York, NY 10005 USA
Tel. +1 212 806-3277

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

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)

-- Legal Criteria for U.S. Structured Finance (December 7, 2023; https://www.dbrsmorningstar.com/research/425081)

-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023; https://www.dbrsmorningstar.com/research/420106)

-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023; https://www.dbrsmorningstar.com/research/420107)

-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023;
https://www.dbrsmorningstar.com/research/414076)

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