Morningstar DBRS Assigns Provisional Credit Ratings to Morgan Stanley Residential Mortgage Loan Trust 2025-NQM4

DBRS, Inc. (Morningstar DBRS) assigned provisional credit ratings to Morgan Stanley Residential Mortgage Loan Trust 2025-NQM4 (MSRM 2025-NQM4 or the Trust) as follows:

-- $299.1 million Class A-1 at (P) AAA (sf)
-- $259.5 million Class A-1-A at (P) AAA (sf)
-- $39.6 million Class A-1-B at (P) AAA (sf)
-- $27.2 million Class A-2 at (P) AA (high) (sf)
-- $34.5 million Class A-3 at (P) A (sf)
-- $14.3 million Class M-1 at (P) BBB (low) (sf)
-- $7.5 million Class B-1 at (P) BB (sf)
-- $8.5 million Class B-2 at (P) B (low) (sf)

Class A-1 is an exchangeable certificate while Class A-1-A and A-1-B are exchange certificates. These classes can be exchanged in combinations as specified in the offering documents.

The (P) AAA (sf) credit ratings on the Certificates reflect 24.55% of credit enhancement provided by the subordinated Certificates. The (P) AA (high) (sf), (P) A (sf), (P) BBB (low) (sf), (P) BB (sf), and (P) B (low) credit ratings reflect 17.70%, 9.00%, 5.40%, 3.50%, and 1.35% of credit enhancement, respectively.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate prime and non-prime first-lien residential mortgages funded by the issuance of the Mortgage Pass-Through Certificates, Series 2025-NQM4. The Certificates are backed by 925 loans with a total principal balance of approximately $396,479,761 as of the Cut-Off Date (June 1, 2025).

The pool is, on average, four months seasoned with loan ages ranging from one to 35 months. The Mortgage Loan Seller acquired approximately 14.0% and 13.7% of the mortgage loans, by aggregate stated principal balance as of the Cut-Off Date, from Hometown Equity Mortgage, LLC and HomeXpress Mortgage Corp., respectively. All the other originators individually comprised less than 10.0% of the overall mortgage loans.

NewRez LLC (formerly known as New Penn Financial, LLC doing business as Shellpoint; the Servicer) will service 100% of the loans. Computershare Trust Company, N.A. (rated BBB (high) with a Stable trend) will act as Custodian. Nationstar Mortgage LLC will act as Master Servicer. Citibank, N.A. (rated AA (low) with a Stable trend) will act as Trustee and Securities Administrator.

As of the Cut-Off Date, 100.0% of the loans in the pool were contractually current according to the Mortgage Bankers Association (MBA) delinquency calculation method.

In accordance with the Consumer Financial Protection Bureau (CFPB) Qualified Mortgage (QM) rules, 23.0% of the loans by balance are designated as non-QM. Approximately 59.0% of the loans in the pool were made to investors for business purposes and are exempt from the CFPB Ability-to-Repay (ATR) and QM rules. Approximately 17.3% of the pool are designated as QM Safe Harbor and 0.8% are designated as QM Rebuttable Presumption (by unpaid principal balance).

Servicers will fund advances of delinquent principal and interest (P&I) until the loan is either more than 90 days delinquent (limited P&I advancing/stop-advance loan under the MBA method) or the P&I advance is deemed unrecoverable. Each servicer is obligated to make advances in respect of taxes and insurance, the cost of preservation, restoration, and protection of mortgaged properties, and any enforcement or judicial proceedings, including foreclosures and reasonable costs and expenses incurred in the course of servicing and disposing of properties until otherwise deemed unrecoverable.

The Sponsor, Morgan Stanley Mortgage Capital Holdings LLC, will retain an eligible vertical interest in the transaction in the required amount of no less than 5% in the form of either (i) 5% of each of the Class A-IO-S, Class A-1-A, Class A-1-B, Class A-2, Class A-3, Class M-1, Class B-1, Class B-2, Class B-3 and Class XS Certificates or (ii) the Class R-PT Certificates (in the case of an exchange) representing at least 5% of the aggregate initial Class balance (and aggregate initial Class Notional Amount in the case of the Class XS Certificates and Class A-IO-S Certificates) to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

The majority holder of the Class XS Certificates may, at its option, on or after the earlier of (1) the payment date in June 2028 or (2) the date on which the balance of mortgage loans and real estate owned (REO) properties falls to or below 30% of the loan balance as of the Cut-Off Date (Optional Termination Date), redeem the Certificates at the optional termination price described in the transaction documents.

The Controlling Holder will have the option, but not the obligation, to purchase any mortgage loan that is 90 or more days delinquent under the MBA method at the Repurchase Price, provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Issuer may require the Seller to repurchase loans that become delinquent in the first three monthly payments following the date of acquisition. Such loans will be repurchased at the related repurchase price.

The transaction's cash flow structure is generally similar to that of other non-QM securitizations. The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Credit Event). In the case of a Credit Event, principal proceeds will be allocated to cover interest shortfalls on the Class A-1-A then A-1-B followed by a reduction of the Class A-1-A then A-1-B certificate balances (IIPP), before an allocation of interest then principal to the Class A-2 (IPIP) followed by a similar allocation of funds to the other classes. For the Class A-2 and Class A-3 Certificates (only after a Credit Event) and for the mezzanine and subordinate classes of Certificates (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior Certificates have been paid off in full. Also, the excess spread can be used to cover realized losses first before being allocated to unpaid Cap Carryover Amounts due to Class A-1-A, A-1-B, A-2, A-3, and M-1 (and B-1 if issued with fixed rate).

Of note, the Class A-1-A, A-1-B, A-2, and A-3 Certificates' coupon rates step up by 100 basis points on and after the payment date in July 2029. P&I otherwise payable to the Class B-3 Certificates as accrued and unpaid interest may be used to pay the Class A-1-A, A-1-B, A-2, and A-3 Certificates cap carryover amounts.

NATURAL DISASTERS/WILDFIRES
The mortgage pool contains loans secured by mortgage properties that are within certain disaster areas (such as those affected by the Greater Los Angeles wildfires). The Sponsor of the transaction informed Morningstar DBRS that the Servicer ordered (and intends to order) property damage inspections for any property in a known disaster zone prior to the transaction's closing date. Loans secured by properties known to be materially damaged will not be included in the final transaction collateral pool.

The transaction documents also include representations and warranties regarding the property conditions, which state that the properties have not suffered damage that would have a material and adverse impact on the values of the properties (including events such as fire, windstorm, flood, earth movement, and hurricane).

The credit ratings reflect transactional strengths that include the following:
-- Robust loan attributes and pool composition;
-- Compliance with the ATR rules;
-- Improved underwriting standards;
-- Current loan status; and
-- Satisfactory third-party due-diligence reviews.

The transaction also includes the following challenges:
-- Debt service coverage ratio loans;
-- Certain non-prime, non-QM, investor loans, and loans to foreign national borrowers;
-- Limited servicer advances of delinquent P&I; and
-- The representations and warranties standard.

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

Morningstar DBRS' credit rating on the Certificates addresses 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 Certificates are the related Interest Distribution Amount, Interest Carryforward Amount, and the related Certificate amount.

Morningstar DBRS' credit ratings on the Class A-1-A, A-1-B, A-2, and A-3 Certificates also address the credit risk associated with the increased rate of interest applicable to the Certificates if they remain outstanding on the step-up date (July 2029) in accordance with the applicable transaction document(s).

Morningstar DBRS' credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, in this transaction, Morningstar DBRS' credit ratings do not address the payment of any Cap Carryover Amounts.

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.

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 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

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities are subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit 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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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.