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Rating Action Commentary


FITCH ASSIGNS EXPECTED RATINGS TO PRPM 2024-NQM3 TRUST; PRESALE ISSUED

Tue 17 Sep, 2024 - 13:05 ET



Related Content:
PRPM 2024-NQM3 Trust (US RMBS)
PRPM 2024-NQM3 Trust - Appendix




Fitch Ratings - New York - 17 Sep 2024: Fitch Ratings has assigned expected
ratings to the residential mortgage-backed certificates to be issued by PRPM
2024-NQM3 Trust (PRPM 2024-NQM3).

PRPM 2024-NQM3 utilizes Fitch's Interactive RMBS presale feature. To access the
interactive feature, click the link at the top of the presale report on the
front page, log into dv01 and explore Fitch's loan-level expectations.







RATING ACTIONS

Entity / Debt  

Rating  


PRPM 2024-NQM3
 

 * A1

LT
AAA(EXP)sf 
Expected Rating
 * A2

LT
AA(EXP)sf 
Expected Rating
 * A3

LT
A(EXP)sf 
Expected Rating
 * M1A

LT
BBB(EXP)sf 
Expected Rating
 * M1B

LT
NR(EXP)sf 
Expected Rating
 * B1

LT
NR(EXP)sf 
Expected Rating
 * B2

LT
NR(EXP)sf 
Expected Rating
 * B3

LT
NR(EXP)sf 
Expected Rating
 * AIOS

LT
NR(EXP)sf 
Expected Rating
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VIEW ADDITIONAL RATING DETAILS


TRANSACTION SUMMARY



The PRPM 2024-NQM3 Trust certificates are supported by 624 loans with a balance
of $269.0 million as of the cutoff date. This will be the sixth PRPM
non-qualified mortgage (NQM, or non-QM) transaction rated by Fitch and the third
PRPM NQM transaction in 2024.

OCMBC, Inc., dba LoanStream Mortgage (LoanStream), originated 20.9% of the pool,
Vontive, Inc. originated 14.9% and The Federal Savings Bank originated 11.9%.
The remaining 52.3% were originated by various third-party originators.
LoanStream is assessed as an 'Average' originator by Fitch, while Vontive and
The Federal Savings Bank have not been reviewed.

Fay Servicing, LLC (Fay Servicing) will service 91.2% of the loans in the pool,
and Shellpoint Mortgage Servicing LLC (Shellpoint) will service the remaining
8.8%. Fitch rates Fay as 'RSS2'/Negative and Shellpoint as 'RSS2'/Stable.




KEY RATING DRIVERS



Updated Sustainable Home Prices (Negative): Due to Fitch's updated view on
sustainable home prices, it views the home price values of this pool as 12.2%
above a long-term sustainable level (versus 11.5% on a national level as of
1Q24, unchanged since the prior quarter). Housing affordability is at its worst
levels in decades, driven by both high interest rates and elevated home prices,
leading to national overvaluation. Home prices increased 5.9% yoy nationally as
of May 2024, despite modest regional declines, although they are still being
supported by limited inventory.

Nonprime Credit Quality (Mixed): Collateral consists of fixed- and
adjustable-rate loans with maturities of up to 40 years. Specifically, the pool
comprises 64.2% 15- to 40-year fully amortizing loans, along with 7.4% 30- and
40-year fixed-rate loans with 10-year interest-only periods. The remaining 28.4%
are adjustable-rate loans with an initial fixed period ranging between 32 months
and 121 months. The pool is seasoned at about 11 months in aggregate, as
determined by Fitch.

Borrowers in this pool have relatively strong credit profiles with a 732
weighted average (WA) FICO score (738 WA FICO, per transaction documents) and a
46.4% debt-to-income ratio (DTI), both as determined by Fitch, as well as
moderate leverage, with an original combined loan-to-value ratio (CLTV) of
74.6%, translating to a Fitch-calculated sustainable LTV ratio (sLTV) of 84.2%.

About 43.7% of the pool loans consist of loans where the borrower maintains a
primary residence and 3.5% are second homes. The remaining 52.8% are investor
properties (7.4% underwritten to borrowers' credit profiles and 45.4% comprising
investor cash flow loans). There are no second liens in the pool, and none of
the loans have subordinate financing.

All loans in the pool were current as of Aug. 31, 2024.

Loan Documentation: Bank Statement, Asset Depletion and DSCR Loans (Negative):
Approximately 77.7% of the pool loans were underwritten to less than full
documentation, according to Fitch. Specifically, 24.0% were underwritten to a
12- or 24-month bank statement program for verifying income, which is not
consistent with Fitch's view of a full documentation program. Additionally, 0.1%
of the loans comprise a 1099 product, 6.9% are a CPA or P&L product, 0.6% are a
tax return product and 45.4% are a debt service coverage ratio (DSCR) product.
Fitch increased the probability of default (PD) on the non-full documentation
loans to reflect the additional risk.

No Advancing (Mixed): The servicers will not be advancing delinquent monthly
payments of principal and interest (P&I). As P&I advances made on behalf of
loans that become delinquent and eventually liquidate reduce liquidation
proceeds to the trust, the loan-level loss severities (LS) are less for this
transaction than for those where the servicer is obligated to advance P&I.

To provide liquidity and ensure timely interest will be paid to the 'AAA' rated
class and ultimate interest on the remaining rated classes, principal will need
to be used to pay for interest accrued on delinquent loans. This will result in
stress on the structure and the need for additional credit enhancement (CE)
compared to a pool with limited advancing.

Modified Sequential-Payment Structure (Neutral): The structure differs slightly
from that of the previous PRPM 2024-NQM2 transaction. The M-1 class has split
into two classes: M-1A and M-1B. Additionally, following a trigger event, class
A-1 principal will be prioritized prior to class A-2 interest.

The structure distributes collected principal pro rata among the class A notes
while excluding subordinate bonds from principal until classes A-1, A-2 and A-3
are reduced to zero. To the extent either a cumulative loss trigger event or a
delinquency trigger event occurs in a given period, principal will be
distributed sequentially to classes A-1, A-2 and A-3 until they are reduced to
zero.

The transaction has excess spread that will be available to reimburse the
certificates for losses or interest shortfalls. The excess spread may be reduced
on and after the accrual period in October 2028 (November 2028 distribution
date) since classes A-1, A-2 and A-3 have a step-up coupon feature that goes
into effect on that date. To mitigate the impact of the step-up feature,
interest payments are redirected from class B-3 to pay any cap carryover
interest for the A-1, A-2 and A-3 classes on and after the accrual period in
October 2028 (November 2028 distribution date).




RATING SENSITIVITIES


FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO NEGATIVE RATING
ACTION/DOWNGRADE



This defined negative rating sensitivity analysis demonstrates how ratings would
react to steeper MVDs at the national level. The analysis assumes MVDs of 10.0%,
20.0% and 30.0%, in addition to the model-projected 42.9%, at 'AAA'. The
analysis indicates there is some potential rating migration, with higher MVDs
for all rated classes compared with the model projection. Specifically, a 10%
additional decline in home prices would lower all rated classes by one full
category.








FACTORS THAT COULD, INDIVIDUALLY OR COLLECTIVELY, LEAD TO POSITIVE RATING
ACTION/UPGRADE



This defined positive rating sensitivity analysis demonstrates how the ratings
would react to positive home price growth of 10% with no assumed overvaluation.
Excluding the senior class, which is already rated 'AAAsf', the analysis
indicates there is potential positive rating migration for all the rated
classes. Specifically, a 10% gain in home prices would result in a full category
upgrade for the rated classes excluding those being assigned ratings of 'AAAsf'.



This section provides insight into the model-implied sensitivities the
transaction faces when one assumption is modified while holding others equal.
The modeling process uses the modification of these variables to reflect asset
performance in up environments and down environments. The results should only be
considered as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors. They should not be used as indicators of possible future
performance.








USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10



Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by
SitusAMC, Consolidated Analytics, Canopy Financial Technology Partners, Inc,
Selene Diligence LLC, Evolve Mortgage Services LLC, Covius Real Estate LLC,
Digital Risk LLC, Incenter Lender Services LLC, Opus Capital Market Consultants
LLC, The Stonehill Group, Inc and CrossCheck Compliance LLC. The third-party due
diligence described in Form 15E focused on credit, compliance and property
valuation. Fitch considered this information in its analysis and, based on the
results of the 100% due diligence performed on the pool, Fitch reduced the
overall 'AAAsf' expected loss by 50bps.




REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the
Applicable Criteria.


REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement
mechanisms (RW&Es) that are disclosed in the offering document and which relate
to the underlying asset pool is available by clicking the link to the Appendix.
The appendix also contains a comparison of these RW&Es to those Fitch considers
typical for the asset class as detailed in the Special Report titled
'Representations, Warranties and Enforcement Mechanisms in Global Structured
Finance Transactions'.



ESG CONSIDERATIONS



PRPM 2024-NQM3 has an ESG Relevance Score of '4' for Transaction Parties &
Operational Risk due to elevated operational risk, which has a negative impact
on the credit profile, and is relevant to the ratings in conjunction with other
factors.

The highest level of ESG credit relevance is a score of '3', unless otherwise
disclosed in this section. A score of '3' means ESG issues are credit-neutral or
have only a minimal credit impact on the entity, either due to their nature or
the way in which they are being managed by the entity. Fitch's ESG Relevance
Scores are not inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision. For more
information on Fitch's ESG Relevance Scores, visit
https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.



Additional information is available on www.fitchratings.com


PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one
or more of the transaction parties participated in the rating process except
that the following issuer(s), if any, did not participate in the rating process,
or provide additional information, beyond the issuer’s available public
disclosure.


APPLICABLE CRITERIA

 * U.S. RMBS Loan Loss Model Criteria (pub. 07 Oct 2022) (including rating
   assumption sensitivity)
 * Criteria for Rating U.S. and Canadian Residential and Small Balance
   Commercial Mortgage Servicers (pub. 15 Dec 2022)
 * U.S. RMBS Cash Flow Analysis Criteria (pub. 26 Oct 2023) (including rating
   assumption sensitivity)
 * U.S. RMBS Rating Criteria (pub. 26 Oct 2023) (including rating assumption
   sensitivity)
 * Structured Finance and Covered Bonds Counterparty Rating Criteria (pub. 28
   Nov 2023)
 * Global Structured Finance Rating Criteria (pub. 19 Jan 2024) (including
   rating assumption sensitivity)
 * U.S. RMBS Surveillance and Re-REMIC Rating Criteria (pub. 27 Feb 2024)
   (including rating assumption sensitivity)
 * Structured Finance and Covered Bonds Interest Rate Stresses Rating Criteria
   (pub. 05 Apr 2024)
 * Structured Finance and Covered Bonds Country Risk Rating Criteria (pub. 20
   Jun 2024)





APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to
criteria providing description of model(s).

Third-party Model (1)
U.S. RMBS Cash Flow Assumptions Model, v2.11.3 (1)
US RMBS Loan Loss Model (Excel platform), v5.10.16 (1)


ADDITIONAL DISCLOSURES

 * Dodd-Frank Rating Information Disclosure Form
 * ABS Due Diligence Form 15E 1
 * ABS Due Diligence Form 15E 2
 * ABS Due Diligence Form 15E 3
 * ABS Due Diligence Form 15E 4
 * ABS Due Diligence Form 15E 5
 * ABS Due Diligence Form 15E 6
 * ABS Due Diligence Form 15E 7
 * ABS Due Diligence Form 15E 8
 * ABS Due Diligence Form 15E 9
 * ABS Due Diligence Form 15E 10
 * ABS Due Diligence Form 15E 11
 * ABS Due Diligence Form 15E 12
 * Solicitation Status
 * Endorsement Policy


ENDORSEMENT STATUS

PRPM 2024-NQM3 Trust EU Endorsed, UK Endorsed


DISCLAIMER & DISCLOSURES



All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and
disclaimers. Please read these limitations and disclaimers by following this
link: https://www.fitchratings.com/understandingcreditratings. In addition, the
following https://www.fitchratings.com/rating-definitions-document details
Fitch's rating definitions for each rating s



Read More


SOLICITATION STATUS

The ratings above were solicited and assigned or maintained by Fitch at the
request of the rated entity/issuer or a related third party. Any exceptions
follow below.


ENDORSEMENT POLICY

Fitch’s international credit ratings produced outside the EU or the UK, as the
case may be, are endorsed for use by regulated entities within the EU or the UK,
respectively, for regulatory purposes, pursuant to the terms of the EU CRA
Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit)
Regulations 2019, as the case may be. Fitch’s approach to endorsement in the EU
and the UK can be found on Fitch’s Regulatory Affairs page on Fitch’s website.
The endorsement status of international credit ratings is provided within the
entity summary page for each rated entity and in the transaction detail pages
for structured finance transactions on the Fitch website. These disclosures are
updated on a daily basis.

Structured Finance
Structured Finance: RMBS
North America
United States


RELATED REGIONS

 * United States





ENTITIES

 * PRPM 2024-NQM3 Trust





ISSUER CONTENT

 * PRPM 2024-NQM3 Trust - Appendix
 * PRPM 2024-NQM3 Trust (US RMBS)





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FITCH RATINGS ANALYSTS

Court Lake
Senior Director
Primary Rating Analyst
+1 646 582 4750
court.lake@fitchratings.com
Fitch Ratings, Inc.
Hearst Tower 300 W. 57th Street New York, NY 10019

Abhishek Shah
Associate Director
Secondary Rating Analyst
+1 646 582 4998
abhishek.shah@fitchratings.com


Stephen Megos
Senior Analyst
Surveillance Rating Analyst
+1 212 908 0370
stephen.megos@fitchratings.com
Fitch Ratings, Inc.
Hearst Tower 300 W. 57th Street New York, NY 10019

Susan Hosterman
Senior Director
Committee Chairperson
+1 212 908 0670
susan.hosterman@fitchratings.com



MEDIA CONTACTS

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New York
+1 212 908 0526
elizabeth.fogerty@thefitchgroup.com

RATINGS KEYOUTLOOKWATCHPositiveNegativeEvolvingStable 

* Ratings displayed in orange denotes EU or UK Unsolicited and Non-Participatory
Ratings



Where there was a review with no rating action (Review – No Action), please
refer to the “Latest Rating Action Commentary” for an explanation of key rating
drivers



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