Morningstar DBRS Finalizes Provisional Credit Ratings on CAFL 2025-RRTL1 Issuer, LP

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the Mortgage-Backed Notes, Series 2025-RRTL1 (the Notes) issued by CAFL 2025-RRTL1 Issuer, LP (CAFL 2025-RRTL1 or the Issuer) as follows:

-- $208.7 million Class A-1 at A (low) (sf)
-- $25.7 million Class A-2 at BBB (low) (sf)
-- $24.0 million Class M-1 at BB (low) (sf)
-- $26.1 million Class M-2 at B (low) (sf)

The A (low) (sf) credit rating reflects 30.45% of credit enhancement (CE) provided by the subordinated notes and overcollateralization. The BBB (low) (sf), BB (low) (sf), and B (low) (sf) credit ratings reflect 21.90%, 13.90%, and 5.20% of CE, respectively.

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

This transaction is a securitization of a two-year revolving portfolio of residential transition loans (RTLs) funded by the issuance of the Mortgage-Backed Notes, Series 2025-RRTL1 (the Notes). As of the Initial Cut-Off Date, the Notes are backed by:
-- 198 mortgage loans with a total unpaid principal balance (UPB) of approximately $155,373,146
-- Approximately $144,626,853 in the Accumulation Account
-- Approximately $1,460,510 in the Pre-funding Interest Account.

Additional RTLs may be added to the revolving portfolio on future additional transfer dates, subject to the transaction's eligibility criteria.

CAFL 2025-RRTL1 represents the fifth RTL securitization issued from the CAFL shelf. Founded in 2014 and acquired in 2019, CoreVest, a wholly owned subsidiary of Redwood Trust, Inc. (Redwood Trust), is a specialty real estate lending and asset management company which specializes in business purpose loans (BPLs) to residential real estate investors, including term loans on stabilized properties and bridge loans. In the 24 months ending December 2024, CoreVest originated $3.3 billion of business purpose loans (BPLs), including $2.1 billion of RTLs.

The revolving portfolio consists of first-lien, fixed- or adjustable-rate, interest-only (IO) balloon RTL with original terms to maturity primarily of 12 to 24 months. The loans may include extension options, which can lengthen maturities beyond the original terms. The characteristics of the revolving pool will be subject to eligibility criteria specified in the transaction documents and include:
-- A minimum non-zero weighted-average (NZ WA) FICO score of 735.
-- A maximum NZ WA Loan-to-Cost (LTC) ratio of 82.5%.
-- A maximum NZ WA As Is Loan-to-Value (AIV LTV) ratio of 70.0%.
-- A maximum NZ WA As Repaired Loan-to-Value (ARV LTV) ratio of 70.0%.

RTL FEATURES
RTLs, also known as fix-and-flip mortgage loans, are short-term bridge, construction, or renovation loans designed to help real estate investors purchase and renovate residential or multifamily 5+ and mixed-use properties (the latter is limited to 5.0% of the revolving portfolio), generally within 12 to 36 months. RTLs are similar to traditional mortgages in many aspects but may differ significantly in terms of initial property condition, construction draws, and the timing and incentives by which borrowers repay principal. For traditional residential mortgages, borrowers are generally incentivized to pay principal monthly, so they can occupy the properties while building equity in their homes. In the RTL space, borrowers repay their entire loan amount when they (1) sell the property with the goal to generate a profit or (2) refinance to a term loan and rent out the property to earn income.

In general, RTLs are short-term IO balloon loans with the full amount of principal (balloon payment) due at maturity. The repayment of an RTL is mainly based on the ability to sell the related mortgaged property or to convert it into a rental property. In addition, many RTL lenders offer extension options, which provide additional time for borrowers to repay their mortgage beyond the original maturity date. For the loans in this transaction, such extensions may be granted, subject to certain conditions, at the direction of the Collateral Administrator.

In the CAFL 2025-RRTL1 revolving portfolio, RTLs may be:
Fully funded:
-- With no obligation of further advances to the borrower,
-- With a portion of the loan proceeds allocated to a rehabilitation (rehab) escrow account for future disbursement to fund construction and/or interest draw requests upon the satisfaction of certain conditions, or
Partially funded:
-- With a commitment to fund borrower-requested draws for approved rehab, construction, or repairs of the property or interest draws, if applicable, upon the satisfaction of certain conditions,
-- With an uncommitted option to fund additional mortgaged properties.

After completing certain construction/repairs using their own funds, the borrower usually seeks reimbursement by making draw requests. Generally, construction draws are disbursed only upon the completion of approved construction/repairs and after a satisfactory construction progress inspection. Based on the CAFL 2025-RRTL1 eligibility criteria, unfunded commitments are limited to 50.0% of the portfolio by the assets of the issuer (UPB plus amounts in the Accumulation Account).

CoreVest Lines of Credit (LOC)
LOC is a product CoreVest offers to experienced RTL borrowers with typically 10+ fix and flip transactions or rental properties. Such LOC can be closed end or revolving, and typically have lower leverage points than CoreVest fix and flip loans. These LOC require both an initial sponsor underwrite (UW), as well as a property UW for each related project.

Generally for revolving LOC, there is a replenishment period of 12 months and a total term of 18 to 24 months. During the replenishment period, new properties/projects can be funded with undrawn amounts available on the LOC. After the LOC replenishment period, as properties/fundings get completed/paid down, the LOC gets paid down as well. Like multiproperty blanket loans, there is a collateral release premium so that the overall LOC LTV improves as properties pay off and exit the LOC.

At LOC origination, CoreVest conducts a full sponsor UW upfront, which includes a complete review of the sponsor's business plan, strategy, and creditworthiness. Based on this review, CoreVest will approve a maximum LOC amount for the sponsor. During the replenishment period of the LOC, for every additional property/funding request by the sponsor, a full property UW is completed, which includes a review of the appraisal, title, insurance, and the project's alignment with the sponsor's business plan. In addition, third-party due-diligence review (TPR) is conducted. CoreVest has no obligation to fund new properties/projects in a LOC, even if there is undrawn balance available, and may decline a request, if warranted, based on its UW review.

Within an RTL securitization, each individual funding within a revolving LOC functions similarly to adding an additional mortgage loan during the revolving period of an RTL securitization. A similar UW and TPR process would be applied to both an additional property in a LOC and an additional loan in an RTL securitization. Transaction eligibility criteria and concentration limits govern the replenishment of LOC collateral in the same fashion as any other RTL in the securitization. Even though LOC borrowers are approved up to a certain line amount, there is no obligation by CoreVest to fund additional fundings in a LOC, similar to how there is no obligation by an RTL lender to a borrower to originate a new RTL.

Once the RTL securitization reaches the end of the reinvestment period, there exists the possibility that certain LOC may still be within their replenishment periods. At that point, all amounts in the securitization Accumulation Account would be released through the waterfall and there would be no more replenishment of cash to fund additional properties. If an LOC borrower requests a new funding for a project during the securitization amortization period, the Collateral Administrator (CoreVest) will advance funds for such additional property. The additional funding would be contributed to the Trust as collateral (adding to the credit support of the securitization) and the Collateral Administrator will reimburse itself for the funding from the cash flow waterfall, only after all the rated notes have paid down to zero.

Cash Flow Structure and Draw Funding
A failure to redeem the Notes in full by the Payment Date in May 2029 (Mandatory Auction Trigger Date) will trigger a mandatory auction of the underlying mortgage loans. If the auction fails to elicit sufficient proceeds to make-whole the Notes, another auction will follow every four months for the first year, and subsequent auctions will be carried out every six months. If the Collateral Administrator fails to conduct the auction, holders of more than 50% of the Class M-2 Notes will have the right to appoint a different auction agent to conduct the auction.

The transaction employs a sequential-pay cash flow structure with bullet pay features to Class A-2 and more subordinate notes on the related Expected Redemption Date (ERD). During the reinvestment period, the Notes will generally be IO. During and after the reinvestment period, principal and interest collections will be used to pay interest to the Notes, sequentially. After the reinvestment period, available funds will be applied as principal to pay down Class A-1, until reduced to zero. After Class A-1 is paid in full and prior to the earliest of (1) the Class M-2 Note ERD, (2) an Event of Default (EOD), or (3) the Mandatory Auction Trigger Date, any available funds remaining will be deposited into the Redemption Account. Class A-2 and more subordinate notes are not entitled to any payments of principal until the earliest of (1) an optional redemption date, (2) the Mandatory Auction Trigger Date, (3) the related ERD, or (4) an EOD. If the Issuer does not redeem the Notes by the payment date in November 2027, the Class A-1 and A-2 fixed rates will step up by 1.000% the following month.

The transaction incorporates a debt for tax structure and the interest rates on the Notes are set at fixed rates, which are not capped by the net weighted-average coupon (Net WAC) or available funds. This feature, along with the bullet features, cause the structure to have elevated subordination levels relative to a comparable structure with fixed-capped interest rates and no bullet feature because interest entitlements are generally higher, and more principal may be needed to cover interest shortfalls. Morningstar DBRS considered such nuanced features and incorporated them in its cash flow analysis. The cash flow structure is discussed in more detail in the Cash Flow Structure and Features section of the related rating report.

There will be no advancing of delinquent (DQ) interest on any mortgage by the Servicers or any other party to the transaction. However, the Collateral Administrator or the Servicers are obligated to fund Servicing Advances which include taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties. The Collateral Administrator or the Servicers, as applicable, will be entitled to reimbursements for Servicing Advances from available funds prior to any payments on the Notes.

The Collateral Administrator will satisfy Draw Requests by (1) directing release of funds from the Rehab Escrow Account to the applicable borrower for loans with funded commitments; or (2) for loans with unfunded commitments, (a) advancing funds on behalf of the Issuer or (b) directing the release of funds from the Accumulation Account. The Collateral Administrator will be entitled to reimbursements for such Draw Advances from the Accumulation Account.

The Accumulation Account is replenished from the transaction cash flow waterfall, after payment of interest to the Notes, to maintain a minimum required funding balance. During the reinvestment period, amounts held in the Accumulation Account, along with the mortgage collateral, must be sufficient to maintain a minimum credit enhancement (CE) of approximately 5.20% to the most subordinate rated class. The structure maintains this CE through a Minimum Credit Enhancement Test, which if breached, redirects available funds (1) to pay down Class A-1 and then (2) to the Redemption Account, prior to replenishing the Accumulation Account.

The transaction also employs the Expense Reserve Account, which will be available to cover fees and expenses. The Expense Reserve Account is replenished from the transaction cash flow waterfall, before payment of interest to the Notes, to maintain a minimum reserve balance.

A Pre-funding Interest Account is in place for the first two months of the securitization to help cover one month of interest payment to the Notes. Such account is funded upfront in an amount equal to $1,460,510. On the payment dates occurring in June and July 2025, the Note Administrator will withdraw a specified amount to be included in the available funds.

Historically, CoreVest RTL originations have generated robust mortgage repayments, which have exceeded unfunded commitments within the same portfolio. In the RTL space, because of the lack of amortization and the short term nature of the loans, mortgage repayments (paydowns and payoffs) tend to occur closer to or at the related maturity dates when compared with traditional residential mortgages. Morningstar DBRS considers paydowns to be unscheduled voluntary balance reductions (generally repayments in full) that occur prior to the maturity date of the loans, while payoffs are scheduled balance reductions that occur on the maturity or extended maturity date of the loans. In its cash flow analysis, Morningstar DBRS evaluated CoreVest's historical mortgage repayments relative to draw commitments and incorporated several stress scenarios where paydowns may or may not sufficiently cover draw commitments. Please see the Cash Flow Analysis section of the related rating report for more details.

Other Transaction Features
Optional Redemption
On any date on or after the earlier of (1) the Payment Date following the termination of the Reinvestment Period or (2) the date on which the aggregate Note Amount falls to less than 25% of the initial Note Amount, the Issuer, at its option, may purchase all the outstanding Notes at par plus interest and fees.

Seller Repurchase Option
The Seller will have the option to repurchase any DQ or credit risk mortgage loan at the Repurchase Price, which is equal to par plus interest and fees. However, such voluntary repurchases in aggregate may not exceed 10.0% of the Closing Date UPB of the mortgage loans (as increased by any approved Draw Requests on mortgage loans with unfunded amounts, satisfied by the Collateral Administrator after the Closing Date). During the reinvestment period, if the Seller repurchases DQ or credit risk mortgage loans, this could potentially delay the natural occurrence of an early amortization event based on the DQ or default trigger. Morningstar DBRS' revolving structure analysis assumes the repayment of Notes is reliant on the amortization of an adverse pool regardless of whether it occurs early or not.

Loan Sales
The Issuer may sell a mortgage loan under the following circumstances:
-- The Sponsor is required to repurchase a loan because of a material breach, a material diligence defect, or a material document defect
-- The Seller elects to exercise its Seller Repurchase Option
-- An optional redemption or successful mandatory auction occurs.

U.S. Credit Risk Retention
As the Sponsor, Redwood Maple, through itself and a majority-owned affiliate (the Originator), will initially retain an eligible horizontal residual interest comprising at least 5% of the aggregate fair value of the securities to satisfy the credit risk retention requirements.

Natural Disasters/Wildfires
The pool contains loans secured by mortgage properties that are located within certain disaster areas (such as those impacted by the Greater Los Angeles wildfires). Although many RTLs have a rehab component, the original scope of rehab may be affected by such disasters. After a disaster, the Servicers follow a standard protocol, which includes a review of the impacted area, borrower outreach if necessary, and filing insurance claims as applicable. Moreover, additional loans added to the trust must comply with R&W specified in the transaction documents, including the damage R&W, as well as the transaction eligibility criteria.

The credit ratings reflect transactional strengths that include the following:
-- Robust pool composition defined by eligibility criteria and concentration limits
-- Historical paydowns and payoffs.
-- Solid historical performance with favorable resolutions.
-- Structural enhancements.
-- Third-party due-diligence review framework.

The transaction also includes the following challenges:
-- Funding of future construction draws.
-- RTL loan characteristics.
-- Representations and warranties framework.
-- No advances of DQ interest.

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

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 Interest Payment Amount and Note Amount.

Morningstar DBRS' credit ratings on the Class A-1 and Class A-2 notes also address the credit risk associated with the increased rate of interest applicable to the Class A-1 and Class A-2 notes if the Class A-1 and Class A-2 notes remain outstanding on the step-up date (December 2027) in accordance with the applicable transaction document(s).

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, AND 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 Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (January 2, 2025), https://dbrs.morningstar.com/research/445477.

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

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website (https://dbrs.morningstar.com/understanding-ratings).

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://dbrs.morningstar.com/about/methodologies.

RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model (Version 1.3.29.0)
https://dbrs.morningstar.com/research/445477

-- Interest Rate Stresses for U.S. Structured Finance Transactions (March 27, 2025), https://dbrs.morningstar.com/research/450750
-- Third-Party Due-Diligence and Representations & Warranties Criteria for U.S. RMBS Transactions (September 30, 2024), https://dbrs.morningstar.com/research/440091
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064
-- Operational Risk Assessment for U.S. RMBS Originators and Servicers (September 30, 2024), https://dbrs.morningstar.com/research/440086

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.