DBRS, Inc. (DBRS Morningstar) assigned the following provisional ratings to the Asset-Backed Notes, Series 2023-RCF1 (the Notes) to be issued by PRPM 2023-RCF1, LLC.
$117.2 million Class A-1 at AAA (sf)
$20.3 million Class A-2 at AA (low) (sf)
$14.2 million Class A-3 at A (low) (sf)
$11.8 million Class M-1 at BBB (low) (sf)
$8.5 million Class M-2 at BB (sf)
The AAA (sf) rating on the Class A-1 notes reflects 42.80% of credit enhancement provided by subordinated notes in the transaction. The AA (low) (sf), A (low) (sf), BBB (low) (sf), and BB (sf) ratings reflect 32.90%, 25.95%, 20.20%, and 16.05% 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 newly originated and seasoned, performing and reperforming, first-lien residential mortgages, funded by the issuance of mortgage-backed notes (the Notes). The Notes are backed by 562 loans with a total principal balance of $204,879,044 as of the Cut-Off Date (April 30, 2023).
The portfolio is approximately 20 months seasoned on average, though the loan ages are quite dispersed, ranging from two months to 358 months. The majority of the loans (68.0%) had origination guideline or document deficiencies, which prevented such loans being sold to Fannie Mae, Freddie Mac, or another purchaser, and the loans were subsequently put back to the sellers. In its analysis, DBRS Morningstar assessed such defects and applied certain penalties, consequently increasing expected losses on the mortgage pool.
Rocket Mortgage, LLC (formally known as Quicken Loans, LLC) originated 32.9% of the pool, which includes most of the loans with guideline or document deficiencies. The remaining originators each represented less than 5.0% of the pool.
In the portfolio, 7.5% of the loans are modified. The modifications happened more than two years ago for 6.1% of the modified loans. Within the portfolio, 40 mortgages have non-interest-bearing deferred amounts, equating to 4.8% of the total unpaid principal balance (UPB). Unless specified otherwise, all statistics on the mortgage loans in the presale report are based on the current UPB, including the applicable non-interest-bearing deferred amounts.
Certain loans in the pool (26.5%) are not subject to or exempt from the Consumer Financial Protection Bureau Ability-to-Repay (ATR)/Qualified Mortgage (QM) rules because of seasoning or because they are business purpose loans. The loans subject to the ATR rules are designated as QM Safe Harbor (63.8% by UPB) and non-QM (9.7%).
PRP-LB V, LLC (the Sponsor) acquired the mortgage loans prior to the Closing Date and, through a wholly owned subsidiary, PRP Depositor 2023-RCF1, LLC (the Depositor), will contribute the loans to the Trust. As the Sponsor, PRP-LB V, LLC or one of its majority-owned affiliates will acquire and retain 5% of the aggregate fair value of the Notes and the membership certificate representing the initial overcollateralization amount to satisfy the credit risk retention requirements.
Although this is the first scratch and dent rated securitization for the issuer with mostly newly originated collateral, the issuer has securitized many rated and unrated transactions under the PRPM shelf, most of which have been seasoned, reperforming, and nonperforming securitizations.
SN Servicing Corporation (77.8%) and Fay Servicing, LLC (22.2%) will act as the Servicers of the loans.
The Servicers will not advance any delinquent principal and interest (P&I) on the mortgages; however, the Servicers are obligated to make advances in respect of prior liens, insurance, real estate taxes, and assessments as well as reasonable costs and expenses incurred in the course of servicing and disposing of properties.
The issuer has the option to redeem the Notes in full at a price equal to the sum of (1) the remaining aggregate Note Amount; (2) any accrued and unpaid interest due on the Notes through the redemption date (including any Cap Carryover); and (3) any fees and expenses of the transaction parties, including any unreimbursed servicing advances (Redemption Price). Such Optional Redemption may be exercised on or after the payment date in June 2025.
The transaction employs a sequential-pay cash flow structure with a bullet feature to Class A-2 and more subordinate notes on the Redemption Date. P&I collections are commingled and are first used to pay interest and any Cap Carryover amount to the Notes sequentially and then to pay Class A-1 until reduced to zero, which may provide for timely payment of interest to certain rated Notes. Class A-2 and below are not entitled to any payments of principal until the Redemption Date or upon the occurrence of a Credit Event. Prior to the Redemption Date or an Event of Default, any available funds remaining after Class A-1 is paid in full will be deposited into a Redemption Account. Beginning on the Payment Date in June 2027, Class A-1 and the other offered Notes will be entitled to their initial Note Rate plus the step-up note rate of 1.00% per annum. If the issuer does not redeem the rated Notes in full by the payment date in July 2029 or an Event of Default occurs and is continuing, a Credit Event will have occurred. Upon the occurrence of a Credit Event, accrued interest on Class A-2 and the other offered Notes will be paid as principal to the Class A-1 Notes until it has been paid in full.
The ratings reflect transactional strengths that include the following:
Collateral credit quality,
Structural features,
Current delinquency status, and
Third-party due-diligence review.
The transaction also includes the following challenges:
Loans originated outside of Fannie Mae, Freddie Mac, or investor guidelines,
Representations and warranties standard,
Assignments and endorsements, and
No servicer advances of delinquent P&I
The full description of the strengths, challenges, and mitigating factors is detailed in the related presale report.
ENVIRONMENTAL, SOCIAL, AND 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 (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.
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 rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this 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 rating action.
This is a solicited credit rating.
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 [email protected].
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 (April 28, 2023),
https://www.dbrsmorningstar.com/research/413297
Interest Rate Stresses for U.S. Structured Finance Transactions (August 30, 2022),
https://www.dbrsmorningstar.com/research/402153
Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 11, 2020),
https://www.dbrsmorningstar.com/research/366613
Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023),
https://www.dbrsmorningstar.com/research/414076
Legal Criteria for U.S. Structured Finance (December 7, 2022), https://www.dbrsmorningstar.com/research/407008
Operational Risk Assessment for U.S. RMBS Originators (November 23, 2022),
https://www.dbrsmorningstar.com/research/405664
Operational Risk Assessment for U.S. RMBS Servicers (November 23, 2022),
https://www.dbrsmorningstar.com/research/405665
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].
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