KBRA Assigns Preliminary Ratings to Morgan Stanley Residential Mortgage Loan Trust 2026-INV1
Kroll Bond Rating Agency (KBRA) has assigned preliminary ratings to 24 classes of mortgage pass-through certificates issued by Morgan Stanley Residential Mortgage Loan Trust 2026-INV1 (MSRM 2026-INV1). The ratings reflect KBRA’s comprehensive evaluation of the transaction’s collateral quality, structural features, cash flow mechanics, and legal framework, in line with its established U.S. RMBS rating methodologies.
The MSRM 2026-INV1 transaction is backed by a diversified pool of fixed-rate residential mortgage loans, primarily secured by investment properties and second homes. KBRA’s analysis incorporates detailed loan-level modeling, third-party due diligence findings, and scenario-based stress testing to assess the credit performance of the underlying mortgage assets.
Transaction Overview
The MSRM 2026-INV1 transaction consists of 749 fixed-rate mortgages (FRMs) with an aggregate principal balance of approximately $310.2 million, measured as of the February 1, 2026, cut-off date. The loans are originated across a range of geographic locations and are collateralized by residential properties that are not owner-occupied as primary residences.
A significant portion of the collateral pool is made up of loans secured by investment properties, which represent 74.2% of the total pool balance. The remaining 25.8% of the loans are secured by second homes. This collateral composition reflects a borrower base that is more exposed to market-driven and cash-flow-related risks than traditional owner-occupied residential mortgage pools, a factor that is explicitly addressed in KBRA’s credit analysis.
Collateral Characteristics
All loans in the MSRM 2026-INV1 pool are fixed-rate mortgages, which reduces borrower exposure to interest rate volatility and helps stabilize monthly payment obligations over the life of the loans. Fixed-rate structures are generally viewed as more predictable from a cash flow perspective, particularly during periods of rising interest rates.
However, the concentration in investment properties introduces additional credit considerations. Borrowers with investment properties may be more likely to default during periods of economic stress, as these properties are often viewed as non-essential assets. Similarly, second homes may experience higher default rates compared to primary residences when borrowers face financial pressure. KBRA incorporates these risk dynamics into its loss modeling assumptions.
Rating Methodology and Analytical Framework
KBRA’s rating approach for MSRM 2026-INV1 employed a loan-level analysis using its proprietary Residential Asset Loss Model (REALM). REALM is designed to estimate expected losses under a variety of economic and housing market scenarios by evaluating borrower characteristics, loan terms, property attributes, and macroeconomic factors.
The analysis also included a detailed review of third-party loan file due diligence, which assessed data integrity, compliance with underwriting guidelines, and adherence to applicable regulatory requirements. Findings from this due diligence process were incorporated into KBRA’s modeling assumptions, including adjustments where potential risks or deficiencies were identified.
Cash Flow Modeling and Structural Review
In addition to collateral analysis, KBRA conducted a cash flow modeling analysis to evaluate the transaction’s payment structure. This analysis examined the priority of payments, allocation of interest and principal, and the behavior of the structure under various stress scenarios, including elevated default and loss assumptions.
Key structural features—such as credit enhancement levels, subordination, and excess spread—were reviewed to determine their effectiveness in absorbing losses and protecting senior certificateholders. The preliminary ratings assigned to each class reflect the relative position of that class within the transaction’s capital structure and its ability to withstand modeled stress scenarios.
Review of Transaction Parties
KBRA also reviewed the roles and capabilities of key transaction parties, including the sponsor, servicer, trustee, and other counterparties. This assessment considered operational experience, historical performance, and governance practices, as these factors can materially influence the ongoing performance of the transaction.
Counterparty risk considerations were evaluated in accordance with KBRA’s Global Structured Finance Counterparty Methodology, ensuring that exposure to operational or financial weaknesses among transaction participants was appropriately addressed in the rating analysis.
Legal Structure and Documentation Assessment
An important component of KBRA’s review involved an assessment of the transaction’s legal structure and documentation. This included an evaluation of representations and warranties, remedies for breaches, servicing standards, and bankruptcy remoteness of the issuing trust.
KBRA analyzed whether the legal framework supports the timely payment of interest and principal to certificateholders and whether it provides adequate protections in stress or default scenarios. The agency’s conclusions from this review were factored into the final preliminary ratings.
ESG Considerations
Environmental, Social, and Governance (ESG) factors were considered where relevant, in line with KBRA’s ESG Global Rating Methodology. While ESG factors were not identified as primary drivers of the ratings, KBRA assessed whether any material ESG-related risks could influence the credit performance of the transaction or the underlying collateral.
Further details on ESG considerations, including scenarios where ESG factors could contribute to a rating upgrade or downgrade, are outlined in the full rating report.
Access to Ratings and Related Documentation
KBRA has made the preliminary ratings and associated transaction documents available through its official platforms. Interested parties can access the full rating report, which provides detailed insights into the analytical assumptions, stress scenarios, and loss projections used in the rating process.
Additional related publications include:
- Morgan Stanley Residential Mortgage Loan Trust 2026-INV1 Tear Sheet
- RMBS KCAT (Kroll Credit Assessment Tool)
- Relevant rating methodologies and analytical frameworks
Methodologies Referenced
The primary methodologies applied in this rating action include:
- RMBS: U.S. RMBS Rating Methodology
- Structured Finance: Global Structured Finance Counterparty Methodology
- ESG Global Rating Methodology
These methodologies describe the models, assumptions, and sensitivity analyses used to determine credit ratings across structured finance transactions.
Disclosures and Additional Information
Further information on key credit considerations, sensitivity analyses, and factors that could lead to a rating upgrade or downgrade is available in the full rating report referenced above. The report also identifies all substantially material sources used in preparing the credit ratings.
Descriptions of each rating category, along with KBRA’s rating scales, policies, and disclosure practices, can be found in the Information Disclosure Forms and on KBRA’s official website. Additional disclosures related to this rating action are also provided in the referenced documentation.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority.
In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
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