DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage Pass-Through Certificates, Series 2021-NQM1 (the Certificates) to be issued by Imperial Fund Mortgage Trust 2021-NQM1 (the Trust):
-- $141.1 million Class A-1 at AAA (sf)
-- $15.7 million Class A-2 at AA (high) (sf)
-- $28.9 million Class A-3 at A (sf)
-- $11.7 million Class M-1 at BBB (low) (sf)
-- $7.7 million Class B-1 at BB (low) (sf)
-- $5.6 million Class B-2 at B (low) (sf)
The AAA (sf) rating on the Class A-1 Certificates reflects 34.15% of credit enhancement provided by subordinated Certificates. The AA (high) (sf), A (sf), BBB (low) (sf), BB (low) (sf), and B (low) (sf) ratings reflect 26.80%, 13.30%, 7.85%, 4.25%, and 1.65% of credit enhancement, respectively.
Other than the specified classes above, DBRS Morningstar does not rate any other classes in this transaction.
This securitization is a portfolio of fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 493 loans with a total principal balance of $214,223,458 as of the Cut-Off Date (May 1, 2021).
This is the second transaction by Imperial Fund I, LLC (Imperial Fund) as Issuer. While the overall collateral characteristics are comparable to other non-QM pools, there are some characteristics unique to the Trust: (1) a large population of the loans (54.3%) is concentrated in Florida; and (2) a notable share of the collateral comprises loans originated to foreign national (5.3%) and to non-resident alien borrowers (3.7%; together, known as foreign borrowers), some of which do not have FICO scores provided by the U.S. credit bureaus.
The originator for the aggregate mortgage pool is A&D Mortgage (ADM). ADM originated the mortgages primarily under the following five programs: Super Prime, Prime, Foreign National, Debt Service Coverage Ratio (DSCR), and Foreign National DSCR. For more information regarding these programs, see the related report.
ADM is the Servicer for all loans. Specialized Loan Servicing LLC will subservice the mortgage loans beginning on or about the Closing Date. Imperial Fund will act as the Sponsor and Servicing Administrator, and Nationstar Mortgage LLC will act as the Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend by DBRS Morningstar) will act as the Securities Administrator and Certificate Registrar. Wilmington Trust National Association (rated AA (low) with a Negative trend by DBRS Morningstar) will serve as the Custodian and Wilmington Savings Fund Society, FSB will act as the Trustee.
In accordance with U.S. credit risk retention requirements, Imperial Fund as the Sponsor, either directly or through a Majority-Owned Affiliate, will retain an eligible horizontal residual interest consisting of the Class B-3 and Class X Certificates (together, the “Risk Retained Certificates”), representing not less than 5% economic interest in the transaction, to satisfy the requirements under Section 15G of the Securities and Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure.
Although the applicable mortgage loans were originated to satisfy the Consumer Financial Protection Bureau (CFPB) ability-to-repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government, or private-label nonagency prime products for various reasons described above. In accordance with the CFPB Qualified Mortgage (QM)/ATR rules, 72.0% are designated as non-QM. Approximately 28.0% of the loans are made to investors for business purposes and are thus not subject to the QM/ATR rules.
The Servicer will generally fund advances of delinquent principal and interest (P&I) on any mortgage until such loan becomes 90 days delinquent, contingent upon recoverability determination. The Servicer is also obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing of properties.
The Sponsor will have the option, but not the obligation, to repurchase any nonliquidated mortgage loan that is 90 or more days delinquent under the Mortgage Bankers Association (MBA) method (or, in the case of any Coronavirus Disease (COVID-19) forbearance loan, such mortgage loan becomes 90 or more days MBA Delinquent after the related forbearance period ends) at the Repurchase Price, provided that such repurchases in aggregate do not exceed 7.5% of the total principal balance as of the Cut-Off Date.
On or after the earlier of May 2024 or the date when the collateral pool balance is reduced to or below 30% of the Cut-Off Date balance, Imperial Fund Mortgage Depositor LLC (the Depositor) has the option to purchase all outstanding certificates (Optional Redemption) at a price equal to the outstanding class balance plus accrued and unpaid interest, including any cap carryover amounts. After such a purchase, the Depositor then has the option to complete a qualified liquidation, which requires a complete liquidation of assets within the Trust and the distribution of proceeds to the appropriate holders of regular or residual interests.
On any date following the date on which the collateral pool balance is less than or equal to 10% of the Cut-Off Date balance, the Servicing Administrator and the Servicer will have the option to terminate the transaction by purchasing all of the mortgage loans and any real-estate owned (REO) property. The purchase price will be equal to the sum of the aggregate stated principal balance of the mortgage loans (other than any REO property) plus applicable accrued interest thereon, the lesser of the fair market value of any REO property and the stated principal balance of the related loan, and any outstanding and unreimbursed advances, accrued and unpaid fees, and expenses that are payable or reimbursable to the transaction parties (Optional Termination). An Optional Termination is conducted as a qualified liquidation.
The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Interest payments and shortfalls on the Class A-1, A-2, and A-3 Certificates can be paid sequentially from the principal remittance waterfall when the trigger event is not in effect. Also, principal proceeds can be used to cover interest shortfalls on the Class A-1 and A-2 Certificates sequentially (IIPP) after a delinquency or cumulative loss trigger event has occurred. For more subordinate Certificates, principal proceeds can be used to cover interest shortfalls as the more senior Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses and prior period bond writedown amounts first before being allocated to unpaid cap carryover amounts to Class A-1 down to Class B-2.
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. DBRS Morningstar saw increases in delinquencies for many residential mortgage-backed securities (RMBS) asset classes, shortly after the onset of coronavirus.
Such mortgage delinquencies were mostly in the form of forbearance, which are generally short-term payment reliefs that may perform very differently from traditional delinquencies. At the onset of coronavirus, because the option to forebear mortgage payments was so widely available, it drove forbearance to a very high level. When the dust settled, coronavirus-induced forbearance in 2020 performed better than expected, thanks to government aid, low LTV, good underwriting in the mortgage market in general. Across nearly all RMBS asset classes, delinquencies have been gradually trending down in recent months as forbearance period comes to an end for many borrowers.
In connection with the economic stress assumed under its moderate scenario (see Global Macroeconomic Scenarios: March 2021 Update, published on March 17, 2021), DBRS Morningstar may assume higher loss expectations for pools with loans on forbearance plans.
For more information regarding rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and commentary: "DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19)," dated March 12, 2020; "DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19)," dated March 20, 2020; and Global Macroeconomic Scenarios: March 2021 Update, dated March 17, 2021.
The ratings reflect transactional strengths that include the following:
-- substantial borrower equity, robust loan attributes, and pool composition;
-- compliance with the ATR rules;
-- satisfactory third-party due-diligence review;
-- current loans; and
-- improved underwriting standards.
The transaction also includes the following challenges:
-- nonprime, non-QM, and investor loans;
-- three-month advances of delinquent P&I;
-- representations and warranties framework; and
-- servicers’ financial capability;
The full description of the strengths, challenges, and mitigating factors is detailed in the related 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.
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.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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 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 email@example.com.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at firstname.lastname@example.org.
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