Morgan Stanley is set to raise approximately $327.1 million in RMBS via a securitization collateralized by 1,132 first-lien residential mortgages, according to Morningstar DBRS.
The asset pool for the deal, Morgan Stanley Residential Mortgage Loan Trust 2026-DSC3, comprises fixed- and adjustable-rate prime and nonprime mortgages, all underwritten as business-purpose loans. The mortgages backing the transaction averaged four months of seasoning, with loan ages ranging from one to 14 months. The deal will offer notes in 10 rated classes, Morningstar DBRS states.
The rating agency says Newrez originated 19.7% of the mortgages, while Loan Funder originated 16.7%. eResi Capital Trust initially sourced 15%. The remainder came from various other mortgage lenders.
DBRS Morningstar explained that the loans were underwritten in compliance with business-purpose program guidelines, based on property value, the borrower's credit profile, and, where applicable, the debt service coverage ratio.
All loans in the portfolio are investor loans, underwritten based on property cash flow and rental income to determine borrower income eligibility.
Given that the loans in the pool were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau's ability-to-repay rules and the TILA/RESPA integrated disclosure rule, DBRS Morningstar says.
Newrez, doing business as Shellpoint Mortgage Servicing, will service 62.3% of the loans. Selene Finance will service 19.3%, and Select Portfolio Servicing will service 18.4%. Rocket Mortgage will serve as the master servicer, and Citibank will be the trustee, securities administrator, and certificate registrar. Computershare Trust Company will be the custodian.
The portfolio's mortgages largely exhibit expanded prime characteristics and strong loan attributes. According to a DBRS Morningstar presale report, borrowers typically have solid credit profiles, with a weighted-average FICO score of 742. Approximately 70.6% of the loans have credit scores of 720 or higher.
The transaction has a sequential-pay cash flow structure. It distributes principal pro rata among the senior tranches, but is subject to performance triggers if cumulative losses or delinquencies exceed a specified threshold. Class A-1 is exchangeable with the A-1FCF and A-1LCF certificates. The senior class coupons also step up by 100 basis points beginning in September 2030.
Morningstar DBRS assigns provisional AAA(sf) ratings to the A-1FCF, A-1LCF, A-1, A-1-A and A-1-B notes; AA (low)(sf) to the A-2 notes; A (low)(sf) to the A-3 notes; BBB (low) (sf) to the M-1 notes; BB (low) (sf) to the B-1 notes; and B (sf) to the B-2 notes.
The AAA-rated classes have 26.50% credit enhancement from subordinated certificates. The provisional ratings of AA (low)(sf), A (low)(sf), BBB (low)(sf), BB (low)(sf) and B(sf) credit ratings correspond to credit enhancement of 15.7%, 11.15%, 7.15%, 3.8% and 2%, respectively.
