Morningstar DBRS Finalizes Provisional Credit Ratings on Point Securitization Trust 2024-1

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following Option-Backed Notes issued by Point Securitization Trust 2024-1 as follows:

-- $98.3 million Class A-1 at A (sf)
-- $29.1 million Class A-2 at BBB (low) (sf)
-- $14.0 million Class B-1 at BB (sf)

The A (sf) credit rating reflects credit enhancement of 50.5% for Class A-1, the BBB (low) (sf) credit rating reflects credit enhancement of 35.8% for Class A-2, and the BB (sf) credit rating reflects credit enhancement of 28.8% for Class B-1.

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

Home equity investments (HEIs) allow homeowners access to the equity in their homes without having to sell their homes or make monthly mortgage payments. HEIs provide homeowners with an alternative to borrowing and are available to homeowners of any age (unlike reverse mortgage loans, for example, for which there is often a minimum age requirement). A homeowner receives an upfront cash payment (an Advance or an Investment Amount) in exchange for giving an Investor (i.e., an Originator) a stake in their property. The homeowner retains sole right of occupancy of the property and pays all upkeep and expenses during the term of the HEI, but the Originator earns an investment return based on the future value of the property, typically subject to a returns cap.

Like reverse mortgage loans, the HEI underwriting approach is asset-based, meaning there is greater emphasis placed on the value of the underlying property and the amount of home equity than on the credit quality of the homeowner. The property value is the main focus for predicting investment return because it is the primary source of funds to satisfy the obligation. HEIs are nonrecourse; in a default situation, a homeowner is not required to provide additional funds when the HEI settlement amount exceeds the remaining equity value in the property (after accounting for any other obligations such as senior liens, if applicable). Recovery of the Advance and any Originator return is primarily subject to the amount of appreciation/depreciation on the property, the amount of debt that may be senior to the HEI, and the cap on investor return.

As of the cut-off date, the collateral consists of approximately $198.57 million in current exercise value from 1,503 nonrecourse HEI agreements secured by first, second, or third liens on single-family, multifamily (two- to four-family), condominium, and planned unit development properties. All the contracts in the asset pool were originated between 2021 and 2023.

Of the pool, 9.29% of the contracts are first lien and have a weighted-average (WA) HEI percentage of 58.29%, 79.67% are second-lien contracts and have a WA HEI percentage of 54.71%, and the remaining 11.04% of the pool are third-lien contracts with a WA HEI of 54.12%. This brings the entire transaction's WA HEI percentage to 54.97%. To better understand the contract math, please see the Contract Mechanics—Worked Example section of the related Presale Report. The current unadjusted loan-to-value ratio (LTV) of the pool is 40.69% (i.e., of senior liens ahead of the contracts). At cut-off, the pool had a WA option-to-value (OTV) of 18.87%, and a current WA loan-plus-option-to-value (LOTV) of 57.70%.

The transaction uses a sequential structure. For cash distributions that are paid prior to the occurrence of a Credit Event, payments are first made to the Interest Amounts and any Interest Carryover on Class A-1 and then the Interest Amounts and any Interest Carryover on Class A-2. Payments are then made to the Note Amount of Class A-1 until such notes are paid off. With respect to Class A-2 Notes, payments are then made to the Note Amount until the Note Amount of the Class A-2 Notes is paid off with an amount up to the amount of Net Sale Proceeds (if any) that was included in the total Available Funds on such Payment Date. The Class B-1 Notes are accrual notes and will not be entitled to any payments of principal until Classes A-1 and A-2 are paid down.

For cash distributions that are paid post the occurrence of a Credit Event, payments are first made to the Interest Amounts and any Interest Carryover on Class A-1 Notes. In the event that the Class A-1 Notes have not been redeemed or paid in full, on or after the Expected Redemption Date, the A-2 Notes Accrual Amount would be paid first to Class A-1 Notes until they are paid off and then as Additional Accrued Amounts to Class A-1 Notes, until such amounts have been reduced to zero. If the Class A-1 Notes have been redeemed or paid in full prior to the Redemption Date, payments are made to the Interest Amounts and any unpaid Interest Carryover on Class A-2 Notes. The Class B-1 Notes are accrual notes and will not be entitled to any payments of principal until Classes A-1 and A-2 are paid down along with their respective Additional Accrued Amounts that have accrued but were previously unpaid.

With respect to Class A-1 Notes, payments are first made to the Note Amount until such amounts are reduced to zero and then to the Additional Accrued Amounts including any unpaid Additional Accrued Amounts until such amounts are reduced to zero on Class A-1 Notes. Class A-2 Notes are then paid the Note Amount until they are paid off and the Additional Accrued Amounts including any unpaid Additional Accrued Amounts until they are reduced to zero. Class B-1 Notes are then paid the Note Amount until it's paid off.

Morningstar DBRS' 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, Interest Amount, and Interest Carryover.

Morningstar DBRS' credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS 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. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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://dbrs.morningstar.com/research/417277.

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

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.

Morningstar DBRS 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 [email protected].

DBRS, Inc.
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Tel. +1 212 806-3277

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

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623
-- Legal Criteria for U.S. Structured Finance (April 15, 2024), https://dbrs.morningstar.com/research/431205
-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://dbrs.morningstar.com/research/420106
-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://dbrs.morningstar.com/research/420107
-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://dbrs.morningstar.com/research/420333
-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://dbrs.morningstar.com/research/414076

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at [email protected].