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Fitch Ratings said Tuesday it expects to rate the residential mortgage-backed notes to be issued by BRAVO Residential Funding Trust 2022-NQM2 (BRAVO 2022-NQM2).
The notes are supported by 573 loans with a total interest-bearing balance of approximately $270 million as of the cutoff date. There is also roughly $860,000 of non-interest-bearing deferred amounts whose payments or losses will be used solely to pay down or write off the class FB notes, Fitch said.
Loans in the pool were originated by multiple originators, and are serviced by Rushmore Loan Management Services LLC.
Fitch assigned the expected ratings as follows:
- A-1: AAA
- A-2: AA
- A-3: A
- M-1: BBB
- B-1: BB
- B-2: B
- B-3, AIOS, XS, FB, SA, R: Not raterd.
Fitch noted that due its updated view on sustainable home prices, it views the home price values of this pool as 8.6% below a long-term sustainable level (versus 9.2% on a national level).
Fitch said the borrowers have a moderate credit profile — a 723 model FICO and a 38% debt to income ratio, which includes mapping for debt service coverage ratio (DSCR) loans — and low leverage, as evidenced by a 65% sustainable loan-to-value ratio (sLTV). The pool comprises 71% of loans treated as owner-occupied, while 29% were treated as an investor property or second home, which includes loans to foreign nationals or loans where the residency status was not provided.
Of the loans, 74.2% are designated as nonqualified mortgage (Non-QM) loans; for the remainder, the Ability to Repay Rule (ATR) does not apply. Lastly, 2.1% of the loans are 30 days' delinquent as of the cutoff date, while 29.9% are current but have experienced a delinquency within the past 24 months, Fitch said.
Approximately 88.8% of the pool were underwritten to less than full documentation, and 44.4% were underwritten to a 12-month or 24-month bank statement program for verifying income, which is not consistent with Appendix Q standards and Fitch's view of a full documentation program, Fitch said. A key distinction between this pool and legacy Alt-A loans, Fitch said, is that these loans adhere to underwriting and documentation standards required under the Consumer Financial Protections Bureau's ATR, which reduces the risk of borrower default arising from lack of affordability, misrepresentation or other operational quality risks due to rigors of the ATR mandates regarding the underwriting and documentation of the borrower's ability to repay.
The full report is available at www.fitchratings.com.