“Fitch views the home price values of this pool as 8.1% above a long-term sustainable level (vs. 10.5% on a national level as of January 2023, down 1.7% since last quarter),” the rating agency wrote in its pre-sale report. “Underlying fundamentals are not keeping pace with the growth in prices, resulting from a supply/demand imbalance driven by low inventory, favorable mortgage rates, and new buyers entering the market. These trends have led to significant home price increases over the past year, with home prices rising 9.2% YoY nationally as of October 2022.”

Another key rating driver is the mixed credit quality of the non-QM loans in the pool. The borrowers have a strong credit profile with a 736 FICO score, a 40.3% debt-to-income ratio, and relatively moderate leverage with an original combined loan-to-value ratio of 71.2%. However, of the pool, 34.2% comprises investor properties, and 67.4% are designated as non-QM loans.

Fitch also noted that there are no second-lien loans in the pool, and 2.1% of the borrowers were viewed by Fitch as having a prior credit event in the past seven years. Additionally, 37 of the loans in the pool are to foreign nationals, which Fitch treats as investor-occupied.

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