DBRS Morningstar Assigns Provisional Ratings to BRAVO Residential Funding Trust 2023-NQM7

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage-Backed Notes, Series 2023-NQM7 (the Notes) to be issued by BRAVO Residential Funding Trust 2023-NQM7:

-- $214.6 million Class A-1 at AAA (sf)
-- $30.2 million Class A-2 at AA (sf)
-- $28.9 million Class A-3 at A (sf)
-- $15.3 million Class M-1 at BBB (sf)
-- $10.4 million Class B-1 at BB (high) (sf)
-- $8.7 million Class B-2 at B (high) (sf)

The AAA (sf) rating on the Class A-1 Notes reflects 34.95% of credit enhancement provided by subordinate notes. The AA (sf), A (sf), BBB (sf), BB (high) (sf), and B (high) (sf) ratings reflect 25.80%, 17.05%, 12.40%, 9.25%, and 6.60% 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 fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Mortgage-Backed Notes, Series 2023-NQM7 (the Notes). The Notes are backed by 787 loans with a total principal balance of approximately $329,878,045, as of the Cut-Off Date (September 30, 2023).

The pool is, on average, six months seasoned with loan ages ranging from one to 95 months. The primary originator of the mortgages is Citadel Servicing Corporation (CSC) doing business as Acra Lending (Acra; 80.4%), the remaining originators each comprise less than 10% of the mortgage loans. ServiceMac, LLC (ServiceMac) will sub-service all of the Citadel serviced loans (83.1%) on behalf of CSC, while NewRez LLC d/b/a Shellpoint Mortgage Servicing will service the other loans of (16.9%).

Nationstar Mortgage LLC (Nationstar) will act as Master Servicer. Citibank, N.A. (rated AA (low)) with a Stable trend by DBRS Morningstar), will act as Indenture Trustee, Paying Agent, and Owner Trustee. Computershare Trust Company, N.A. (rated BBB with a Stable trend by DBRS Morningstar) will act as Custodian.

Sixteen loans (1.8% of the pool) are 30 to 59 days delinquent, according to the Mortgage Bankers Association (MBA) delinquency calculation method. As of the Cut-Off Date, 98.2% of the loans have been performing since origination.

In accordance with the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) rules, 50.2% of the loans by balance are designated as non-QM. Approximately 49.2% of the loans in the pool made to investors for business purposes are exempt from the CFPB Ability-to-Repay (ATR) and QM rules.

There will be no advancing of delinquent principal or interest on any mortgage loan by the servicers or any other party to the transaction; however, each servicer is obligated to make advances in respect of taxes and insurance, the cost of preservation, restoration, and protection of mortgaged properties and any enforcement or judicial proceedings, including foreclosures and reasonable costs and expenses incurred in the course of servicing and disposing of properties.

The Sponsor or a majority-owned affiliate of the Sponsor will acquire and intends to retain an eligible horizontal residual interest consisting of the Class B-3 Notes, collectively representing at least 5.0% of the aggregate fair value of the Notes (other than the Class SA, Class FB, and Class R Notes) to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The holder of the Trust Certificates may, at its option, on or after the earlier of (1) the payment
date in October 2026 or (2) the date on which the balance of mortgage loans and real estate owned (REO) properties falls to or below 30% of the loan balance as of the Cut-Off Date (Optional Termination Date), purchase all of the loans and REO properties at the optional termination price described in the transaction documents.

The Depositor, at its option, may purchase any mortgage loan that is 90 days or more delinquent under the Mortgage Bankers Association (MBA) method (or in the case of any loan that has been subject to a Coronavirus Disease (COVID-19) pandemic-related forbearance plan, on any date from and after the date on which such loan becomes 90 days MBA delinquent following the end of the forbearance period) at the repurchase price (Optional Purchase) described in the transaction documents. The total balance of such loans purchased by the Depositor will not exceed 10% of the Cut-Off Date balance.

The transaction's cash flow structure is similar to that of other non-QM securitizations. The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). Principal proceeds can be used to cover interest shortfalls on the Class A-1 and Class A-2 Notes (IIPP) before being applied sequentially to amortize the balances of the senior and subordinated notes. For the Class A-3 Notes (only after a Credit Event) and for the mezzanine and subordinate classes of notes (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior notes have been paid off in full. Also, the excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts due to Class A-1 down to Class A-3.

Of note, the coupon rates for the Class A-1, A-2, and A-3 Notes step up by 100 basis points on and after the payment date in November 2027. Also, the interest and principal otherwise payable to the Class B-3 Notes as accrued and unpaid interest may be used to pay the Class A-1, A-2, and A-3 Notes Cap Carryover Amounts after the Class A coupons step up.

The ratings reflect transactional strengths that include the following:

-- Robust loan attributes and pool composition,
-- Compliance with the ATR rules,
-- Improved underwriting standards,
-- Current loan status, and
-- Certain aspects of third-party due-diligence reviews.

The transaction also includes the following challenges:

-- Debt Service Coverage Ratio (DSCR) Loans;
-- Certain Non-Prime, Non-QM, Investor Loans, and Loans to ITIN Residents;
-- No servicer advances of delinquent principal and interest; and
-- The representations and warranties standard.

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

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 current interest, any interest carryforward amount, and the related note amount.

DBRS Morningstar’s credit ratings on Classes A-1, A-2, and A-3 also address the credit risk associated with the increased rate of interest applicable to these Notes if they remain outstanding on the step-up date (November 2027) in accordance with the applicable transaction documents.

DBRS Morningstar’s credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction documents that are not financial obligations. For example, in this transaction, DBRS Morningstar's ratings do not address the payment of any cap carryover 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 ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (August 31, 2023; https://www.dbrsmorningstar.com/research/420108).

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/421227.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
140 Broadway, 43rd Floor
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.

-- 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 (June 9, 2023; https://www.dbrsmorningstar.com/research/415687)
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023; https://www.dbrsmorningstar.com/research/420333)
-- 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)
-- U.S. Residential Mortgage Originator Rankings (June 26, 2023; https://www.dbrsmorningstar.com/research/416457)
-- 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)

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