Morningstar DBRS Finalizes Its Provisional Credit Ratings on Connecticut Avenue Securities Trust 2025-R04

DBRS, Inc. (Morningstar DBRS) finalized its following provisional credit ratings on the Connecticut Avenue Securities (CAS) Series 2025-R04 Notes (the Notes) issued by Connecticut Avenue Securities Trust 2025-R04 (CAS 2025-R04 or the Issuer):

-- $234.4 million Class 1A-1 at A (high)
-- $234.4 million Class 1M-1 at A (low)
-- $145.5 million Class 1M-2 at BBB (high)
-- $48.5 million Class 1M-2A at A (low)
-- $48.5 million Class 1M-2B at BBB (high)
-- $48.5 million Class 1M-2C at BBB (high)
-- $48.5 million Class 1E-A1 at A (low)
-- $48.5 million Class 1A-I1 at A (low)
-- $48.5 million Class 1E-A2 at A (low)
-- $48.5 million Class 1A-I2 at A (low)
-- $48.5 million Class 1E-A3 at A (low)
-- $48.5 million Class 1A-I3 at A (low)
-- $48.5 million Class 1E-A4 at A (low)
-- $48.5 million Class 1A-I4 at A (low)
-- $48.5 million Class 1E-B1 at BBB (high)
-- $48.5 million Class 1B-I1 at BBB (high)
-- $48.5 million Class 1E-B2 at BBB (high)
-- $48.5 million Class 1B-I2 at BBB (high)
-- $48.5 million Class 1E-B3 at BBB (high)
-- $48.5 million Class 1B-I3 at BBB (high)
-- $48.5 million Class 1E-B4 at BBB (high)
-- $48.5 million Class 1B-I4 at BBB (high)
-- $48.5 million Class 1E-C1 at BBB (high)
-- $48.5 million Class 1C-I1 at BBB (high)
-- $48.5 million Class 1E-C2 at BBB (high)
-- $48.5 million Class 1C-I2 at BBB (high)
-- $48.5 million Class 1E-C3 at BBB (high)
-- $48.5 million Class 1C-I3 at BBB (high)
-- $48.5 million Class 1E-C4 at BBB (high)
-- $48.5 million Class 1C-I4 at BBB (high)
-- $97.0 million Class 1E-D1 at BBB (high)
-- $97.0 million Class 1E-D2 at BBB (high)
-- $97.0 million Class 1E-D3 at BBB (high)
-- $97.0 million Class 1E-D4 at BBB (high)
-- $97.0 million Class 1E-D5 at BBB (high)
-- $97.0 million Class 1E-F1 at BBB (high)
-- $97.0 million Class 1E-F2 at BBB (high)
-- $97.0 million Class 1E-F3 at BBB (high)
-- $97.0 million Class 1E-F4 at BBB (high)
-- $97.0 million Class 1E-F5 at BBB (high)
-- $97.0 million Class 1-X1 at BBB (high)
-- $97.0 million Class 1-X2 at BBB (high)
-- $97.0 million Class 1-X3 at BBB (high)
-- $97.0 million Class 1-X4 at BBB (high)
-- $97.0 million Class 1-Y1 at BBB (high)
-- $97.0 million Class 1-Y2 at BBB (high)
-- $97.0 million Class 1-Y3 at BBB (high)
-- $97.0 million Class 1-Y4 at BBB (high)
-- $48.5 million Class 1-J1 at BBB (high)
-- $48.5 million Class 1-J2 at BBB (high)
-- $48.5 million Class 1-J3 at BBB (high)
-- $48.5 million Class 1-J4 at BBB (high)
-- $97.0 million Class 1-K1 at BBB (high)
-- $97.0 million Class 1-K2 at BBB (high)
-- $97.0 million Class 1-K3 at BBB (high)
-- $97.0 million Class 1-K4 at BBB (high)
-- $145.5 million Class 1M-2Y at BBB (high)
-- $145.5 million Class 1M-2X at BBB (high)

Classes 1M-2, 1A-I1, 1A-I2, 1A-I3, 1A-I4, 1E-A1, 1E-A2, 1E-A3, 1E-A4, 1B-I1, 1B-I2, 1B-I3, 1B-I4, 1E-B1, 1E-B2, 1E-B3, 1E-B4, 1C-I1, 1C-I2, 1C-I3, 1C-I4, 1E-C1, 1E-C2, 1E-C3, 1E-C4, 1E-D1, 1E-D2, 1E-D3, 1E-D4, 1E-D5, 1E-F1, 1E-F2, 1E-F3, 1E-F4, 1E-F5, 1-J1, 1-J2, 1-J3, 1-J4, 1-K1, 1-K2, 1-K3, 1-K4, 1-X1, 1-X2, 1-X3, 1-X4, 1-Y1, 1-Y2, 1-Y3, 1-Y4, 1M-2Y and 1M-2X are Related Combinable and Recombinable Notes (RCR Notes). Classes 1A-I1, 1A-I2, 1A-I3, 1A-I4, 1B-I1, 1B-I2, 1B-I3, 1B-I4, 1C-I1, 1C-I2, 1C-I3, 1C-I4, 1-X1, 1-X2, 1-X3, 1-X4, 1-Y1, 1-Y2, 1-Y3, 1-Y4, and 1M-2X are interest-only (IO) RCR Notes.

The A (high) (sf), A (low) (sf), and BBB (high) (sf) credit ratings reflect 4.25%, 2.80%, and 1.90% of credit enhancement, respectively. Other than the specified classes above, Morningstar DBRS does not rate any other classes in this transaction.

CAS 2025-R04 is the 69th benchmark transaction in the CAS series. The Notes are subject to the credit and principal payment risk of a certain reference pool (the Reference Pool) of residential mortgage loans held in various Fannie Mae-guaranteed mortgage-backed securities (MBS). As of the Cut-Off Date, the Reference Pool consists of 49,355 greater-than-20-year term, fully amortizing, first-lien, fixed-rate mortgage loans underwritten to a full documentation standard, with original loan-to-value (LTV) ratios greater than 60% and less than or equal to 80%. The mortgage loans were estimated to be originated on or after December 2023 and were acquired by Fannie Mae between August 1, 2024, and October 31, 2024.

On the Closing Date, the Issuer will enter into a Collateral Administration Agreement (CAA) with Fannie Mae and the Indenture Trustee. Fannie Mae, as the credit protection buyer, will be required to make transfer amount payments. The Issuer is expected to use the aggregate proceeds realized from the sale of the Notes to purchase certain eligible investments to be held in a securities account. The eligible investments are restricted to highly rated, short-term investments. Cash flow from the Reference Pool is not used to make any payments; instead, a portion of the eligible investments held in the securities account will be liquidated to make principal payments to the Noteholders and return amount, if any, to Fannie Mae upon the occurrence of certain specified credit events and modification events.

This transaction includes a rated senior Class 1A-1 Note. The Class 1A-1 Note is subordinate to the Class A-H reference tranche. If the Class 1A-1 Cumulative Net Loss Test is met, the Class 1A-1 Note will receive principal payment based on a predetermined schedule for the first 36 months, after which 100% of the senior reduction amount will be used to pay down the Class 1A-1 Note. In period 39, if the Class 1A-1 Note is outstanding and the Class 1A-1 Cumulative Net Loss Test is met, the Class 1A-1 Note will be paid in full. If the Class 1A-1 Cumulative Net Loss Test is not met, the Class 1A-1 Note will be locked out from receiving principal payments, except its share of supplemental reduction amount.

The coupon rates for the Notes are based on the 30-day average Secured Overnight Financing Rate (SOFR). There are replacement provisions in place in the event that SOFR is no longer available; please see the Offering Memorandum for more details. Morningstar DBRS did not run interest rate stresses for this transaction, as the interest is not linked to the performance of the reference obligations. Instead, the Issuer will use the net investment earnings on the eligible investments together with Fannie Mae's transfer amount payments to pay interest to the Noteholders.

The calculation of principal payments to the Notes will be based on actual principal collected on the Reference Pool. The scheduled and unscheduled principal will be combined and only be allocated pro rata between the senior and nonsenior tranches if the performance tests are satisfied. The minimum credit enhancement test ¿ one of the three performance tests ¿ for CAS 2025-R04 is set to pass at the Closing Date. This allows rated classes to receive principal payments from the First Payment Date, provided the delinquency test is met. Additionally, the Class 1A-1 and nonsenior tranches will also be entitled to a supplemental reduction amount if the offered reference tranche percentage increases above 5.50%.

The interest payments for these transactions are not linked to the performance of the reference obligations except to the extent that modification losses have occurred.

The Notes will be scheduled to mature on the payment date in May 2045, but will be subject to mandatory redemption prior to the scheduled maturity date upon the termination of the CAA.

Fannie Mae will serve as the Administrator, Trustor, and Master Servicer of the transaction. Computershare Trust Company, N.A. (rated BBB (high) with a Stable trend and R-1 (low) with a Stable trend by Morningstar DBRS) will act as the Indenture Trustee, Exchange Administrator, Custodian, and Investment Agent. U.S. Bank National Association (rated AA with a Stable trend and R-1 (high) with a Stable trend by Morningstar DBRS) will act as the Delaware Trustee.

In this transaction, Value Acceptance (Appraisal Waiver), including Value Acceptance with Property Data Collection, was granted for approximately 20.8% of the loans rather than a traditional full appraisal. Loans where the Value Acceptance was granted generally have better credit scores and lower original LTVs.

If a reference obligation is refinanced under the High LTV Refinance Program, then the resulting refinanced reference obligation may be included in the Reference Pool as a replacement of the original reference obligation. The High LTV Refinance Program provides refinance opportunities to borrowers with existing Fannie Mae mortgages who are current in their mortgage payments but whose LTV ratios exceed the maximum permitted for standard refinance products. The refinancing and replacement of a reference obligation under this program will not constitute a credit event.

The credit ratings reflect transactional strengths that include the following:
-- Seller (or Lender)/Servicer Approval Process and Quality Control Platform
-- Well-Diversified Reference Pool
-- High-Quality Credit and Loan Attributes
-- Strong Alignment of Interest
-- Extensive Performance History

The transaction also includes the following challenges:
-- Representation and Warranties (R&W) Framework
-- Limited third-party due diligence
-- Counterparty Exposure

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

Morningstar DBRS' credit rating on the notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the Interest Payment Amount and the Class Principal Balance (for non-IO Notes).

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 factor(s) 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 US 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 02, 2025) https://dbrs.morningstar.com/research/445477.

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.

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 the 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.
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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.

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 dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.