MORGAN STANLEY CAPITAL I INC. ABS-15G

Exhibit 99.4

 

EXECUTIVE SUMMARY
Third Party Due Diligence Review

Overview

Consolidated Analytics, Inc (“Consolidated Analytics”), a third-party due diligence provider, performed the review described below on newly originated residential mortgage loans acquired by Morgan Stanley Mortgage Capital Holdings LLC and/or its affiliates through a bulk purchase. The review included a total of 94 newly originated residential mortgage loans, in connection with the securitization identified as MSRM 2024-NQM2 (the “Securitization”). The Review was conducted from June 2023 through March 2024 on mortgage loans originated between January 2023 and February 2024.

Scope of Review

Credit Review

Consolidated Analytics performed a “Credit Review” to verify compliance with guidelines in effect at the time of loan origination, or other guidelines provided by Client prior to review, and ensure the characteristics used by the underwriter are supported by the file documentation; and determine whether any loans outside of those guidelines contain legitimate and approved exceptions with compensating factors.

The Credit Review attempted to confirm the following:

a. QM or ATR Validation / Review of 8 Key Underwriting Factors

i. Income / Assets

● Validate borrower(s) monthly gross income

● Validate funds required to close, required reserves

● Review file documentation for required level of income and asset verifications

ii. Employment Status

● Review file documentation for required level of employment

iii. Monthly Mortgage Payment

● Confirm program, qualifying rate, terms

iv. Simultaneous Loans

● Validate all concurrent loans are included in the DTI to properly assess the ability to repay

v. Mortgage Related Obligations: PITI, HOA, PMI, etc.

● Validate subject loan monthly payment (PITI) and associated obligations

vi. Debts / Obligations

● Validate monthly recurring liabilities

vii. DTI and/or Residual Income

● Validate debt-to-income ratio (DTI) based upon income and debt documentation provided in the file

● Documentation meets Appendix Q requirements for QM Loans

viii. Credit History

● Review credit report for credit history and required credit depth including any / all inquiries

● Determine representative credit score from credit report

b. Validate loan-to-value (LTV) and combined loan-to-value

c. Review borrower's occupancy

d. Validation through third party resource of the subject properties most recent twelve (12) month sales history

e. Confirm sufficient evidence in loan file, by reviewing the underwriter’s decision to approve the loan based upon the borrows income, debt, and credit history, to support borrower's willingness and ability to repay the debt

f. Confirm that Final 1003 is sufficiently completed

g. Provide Audit 1008 with accurate data based on file documentation

h. Confirm Loan Approval conditions were met

i. Review condominium questionnaire to verify all information is complete, prepared by an authorized representative, and address any red flags that may deem condominium project ineligible

j. General QM for any loans originated under the GQM Rule

i. Pricing Thresholds:

a. Pricing for First Lien Loans:

i. 2.25% for a first-lien covered transaction with a loan amount greater than or equal to the applicable dollar amount threshold; and

ii. 3.5% for a first-lien covered transaction with a loan amount greater than or equal to the applicable dollar amount threshold; and

iii. 6.5% for a first-lien covered transaction with a loan amount less than the applicable dollar amount threshold.

b. Pricing for Subordinate Lien Loans:

i. 3.5% for a subordinate-lien covered transaction with a loan amount greater than or equal to the applicable dollar amount threshold; and

ii. 6.5% for a subordinate-lien covered transaction with a loan amount less than the applicable dollar amount threshold.

c. Pricing for Manufactured Homes:

i. 2.25% for a first-lien covered transaction secured by a manufactured home with a loan amount equal to or greater than the applicable dollar amount threshold; and

ii. 6.5% for a covered transaction secured by a manufactured home with a loan amount less than the applicable dollar amount threshold.

ii. Consider Income and Assets:

○ Consumer’s current or reasonably expected income or assets (other than the value of the dwelling that secures the loan;

○ The consumer’s debt obligations, alimony, child support; and

○ The monthly DTI or residual income.

iii. Verification of Income and Assets:

a. Verification in compliance with one of the “safe harbor” guidelines will meet the QM verification requirement. A creditor is allowed to “mix and match” provisions of the different guidelines rather than only apply one guideline per loan.

The specific guidelines that the CFPB is designating for the safe harbor are: The GQM Rule provides that if the creditor verifies the consumer’s income or assets, debt obligations, alimony, child support, and monthly DTI or residual income by meeting the standards of certain specified third-party underwriting manuals, then a creditor is presumed to have complied with the verification requirement. These specified manuals are:

i. Chapters B3-3 through B3-6 of the Fannie Mae Single Family Selling Guide, published June 3, 2020;

ii. Sections 5102 through 5500 of the Freddie Mac Single-Family Seller/Servicer Guide, published June 10, 2020;

iii. Sections II.A.1 and II.A.4-5 of the Federal Housing Administration’s Single Family Housing Policy Handbook, issued October 24, 2019;

iv. Chapter 4 of the U.S. Department of Veterans Affairs’ Lenders Handbook, revised February 22, 2019;

v. Chapter 4 of the U.S. Department of Agriculture’s Field Office Handbook for the Direct Single Family Housing Program, revised March 15, 2019; and

vi. Chapters 9 through 11 of the U.S. Department of Agriculture’s Handbook for the Single Family Guaranteed Loan Program, revised March 19, 2020.

Compliance Review

Consolidated Analytics performed a “Compliance Review” to determine, as applicable, to the extent possible and subject to the caveats below, whether the loan complies with applicable regulatory requirements as noted below, each as amended, restated and/or replaced from time to time. In relation to cashout refinances of investment property loans, documentation provided in the loan file will be reviewed only to validate the use of cash out proceeds of business purposes at the origination/consummation of the loan. In the event use of proceeds cannot be validated, or are deemed to be utilized for consumer purposes, the loan would then be subject to a “Compliance Review” of applicable regulatory requirements as noted below, each as amended, restated and/or replaced from time to time. The Compliance Review included the following:

a. Test Loan Estimate(s) for accuracy and completeness as well as timing requirements as required by TRID Regulations

b. Test Closing Disclosure(s) for accuracy and completeness as well as timing requirements as required by TRID Regulations

c. Tolerance Testing

i. Compare Loan Estimate and Closing Disclosures

ii. Identify Tolerance Violations and applicable cost to cure

d. Comprehensive review of Closing Disclosure to determine transaction accuracy

e. Recalculation of APR and Finance Charge

f. Testing of:

i. Federal High Cost Mortgage provisions

ii. Federal Higher Priced Mortgage Loans provisions

iii. Local and/or State Anti-predatory and High Cost provisions

iv. HOEPA Points and Fees

g. Determine whether specified federal disclosures were provided timely based upon comparison of the application date to the dates on such disclosures

i. Service Provider List

ii. Home Ownership Counselling Disclosure

iii. ARM Disclosure

h. Compliance with QM as it relates to:

i. APR Test

ii. Points & Fees Test

iii. Prepayment Penalty Test

iv. Product Eligibility Testing

i. Notice of Right to Cancel (Rescission) Review

i. Confirm transaction date, expiration date, and disbursement date

ii. Confirm document is properly executed by all required parties to the transaction

iii. Confirm the correct Right of Rescission document was executed for the transaction type

j. Confirm through NMLS the loan originator and ○riginating firm's license status was active and properly disclosed on appropriate loan documents

k. Check the Loan participants against the exclusionary list provided by Client or by the purchaser of the Loan(s)

l. Review closing documents to ensure that the Mortgage Loan information is complete, accurate, and consistent with other documents; Confirm collateral documents have been recorded or sent for recording

The Compliance Review did not include any federal, state or local laws, constitutional provisions, regulations or ordinances that are not expressly enumerated above. Furthermore, the findings reached by Consolidated Analytics are dependent upon its receiving complete and accurate data regarding the loans from loan originators and other third parties upon which Consolidated Analytics is relying in reaching such findings.

Valuation Review

Consolidated Analytics performed a “Valuation Review,” which included the following:

a. Review original appraisal, determination that property is in "average" condition or better, or property requires cosmetic improvements (as defined by the appraiser) that do not affect habitability. Should an area of concern be identified with the condition of the property, Consolidated Analytics will alert Client.

b. Review appraisal, determination that property is completely constructed and appraisal is on an “as is basis,” or property is identified as not completely constructed by originating appraiser.

c. Review and determine if the appraisal report was performed on appropriate GSE forms and if the appraiser indicated in the body of the subject appraisal that the appraisal conforms to USPAP standards.

d. Review and determine the relevance of the comparable properties and ensure that a rational and reliable value was provided and supported as of the effective date of the Origination Appraisal.

e. Review adjustments (line item, net and gross adjustments) to ensure they are reasonable.

f. Ensure that the appraisal conforms to the guidelines provided from the Client.

g. Review appraisal to ensure all required documents were included.

h. Review location map provided within the appraisal for external obsolescence.

i. Ensure highest and best use and zoning complies with guidelines.

j. Confirm there are no marketability issues that affect the subject property.

k. Ensure subject property does not suffer any functional obsolescence.

l. Where applicable, determine if the file did not contain the appraisal or other valuation method and a review could not be performed.

m. Additional valuation products were not required when the CU score provided was 2.5 or below or the appraisal LCA risk score was eligible for Collateral Rep and Warranty relief. In the event the CU score was greater than 2.5 or the LCA score was not eligible for R&W relief, an additional valuation product was obtained to confirm value was supported within 10% tolerance. In some instances, based on guidance from the seller, CDA’s were ordered on loans that had an acceptable CU score or R&W eligibility.

Consolidated Analytics applied a cascade methodology to determine if the original appraised value was reasonably supported when compared to an independent third party valuation product.

For loans reviewed in a post-close valuation review scenario (94 loans in total):

Eleven (11) loans had a Secondary Appraisal, zero (0) loans had an AVM, and ninety (90) loans had Desktop Reviews. Consolidated Analytics has independent access to the Desktop Reviews ordered by the Aggregator.

If a loan with an AVM or Desktop Review fell outside of a -10% tolerance, was inconclusive, or a PIW was present, then a Field Review, a Broker Price Opinion (BPO) along with a Reconciliation of the values or a 2nd Appraisal was completed. There were zero (0) occurrences of this.

Six (6) loans had a Second Desk Review, and one (1) loan had a Full Appraisal Review, all of which supported value.

Product totals may not sum due to multiple products for each loan 

TAPE INTEGRITY REVIEW RESULTS SUMMARY

Of the ninety-four (94) mortgage loans reviewed, forty-two (42) unique mortgage loans (44.68% by loan count) had a total of eighty-seven (87) discrepancies across twenty-seven (27) data fields. A blank or zero value on the data tape when an actual value was captured by Consolidated Analytics was not treated as a data variance.

Fields Reviewed	Discrepancy Count	Percentage
Originator DTI	19	21.84%
Origination Date	12	13.79%
Original Collateral Value Date	9	10.34%
Borrower Appraisal Receipt Date	8	9.20%
Cash Out Amount	4	4.60%
Closing Date	4	4.60%
Qualifying Total Reserves Number of Months	3	3.45%
Total Liquid Assets Available For Close	3	3.45%
Total Qualified Assets Available	3	3.45%
Property Type	2	2.30%
Cash out Include Debt Paid at Close	2	2.30%
Most Recent FICO Date	2	2.30%
Borrower First Time Buyer	2	2.30%
Qualifying Interest Rate	1	1.15%
Months Reserves	1	1.15%
Qualifying Total Monthly Liabilities	1	1.15%
UW FICO Utilized	1	1.15%
Application Date	1	1.15%
Original PITI Payment	1	1.15%
Qualifying LTV	1	1.15%
ARM Initial Interest Rate Minimum	1	1.15%
Loan Purpose	1	1.15%
Index	1	1.15%
Cash Disbursement Date	1	1.15%
Liquid Cash Reserves	1	1.15%
Qualifying CLTV	1	1.15%
Original Collateral Value Type	1	1.15%
Grand Total	87	100.00%

Summary of Results

OVERALL RESULTS SUMMARY

Final Loan Grades

Overall Loan Results:
Event Grade	Loan Count	Original Principal Balance	Percent of Sample
Event  Grade A	89	$60,037,214.00	94.68%
Event  Grade B	5	$4,698,500.00	5.32%
Event  Grade C	0	$0.00	0%
Event  Grade D	0	$0.00	0%
Total Sample	94	$64,735,714.00	100.00%

Credit Results:
Event Grade	Loan Count	Percent of Sample
Event  Grade A	90	95.74%
Event  Grade B	4	4.26%
Event  Grade C	0	0%
Event  Grade D	0	0%
Total Sample	94	100.00%

Compliance Results:
Event Grade	Loan Count	Percent of Sample
Event  Grade A	94	100.00%
Event  Grade B	0	0%
Event  Grade C	0	0%
Event  Grade D	0	0%
Total Sample	94	100.00%

Valuation Results:
Event Grade	Loan Count	Percent of Sample
Event  Grade A	93	98.94%
Event  Grade B	1	1.06%
Event  Grade C	0	0%
Event  Grade D	0	0%
Total Sample	94	100.00%

Exception Category Summary

The table below summarizes the individual exceptions which carried an associated “A”, “B”, “C”, or “D” level exception grade. One loan may have carried more than one exception. In such cases, the exception with the lowest grade would drive the loan grade for that particular area of the review. The overall loan grade is the lowest grade for any one particular review scope (ex. a loan with a Compliance Grade of “B”, a Credit Grade of “A”, and a Property Grade of “A” would receive an overall Loan Grade of “B”).

Exception Type	Exception Level Grade	Exception Category	Total
Credit	A	No Credit Findings	79
		The Deed of Trust is Incomplete	3
		Income/Employment General	1
		Borrower Liabilities Verification Indicator is Partial	1
		Audited Reserves are less than Guideline Required Reserves (Number of Months)	1
		Evidence of Property Tax Missing	1
		Audited Reserves are less than Guideline Required Reserves (Dollar Amount)	1
		Final Loan Application is Missing	1
		Liquid Reserves are less than Guidelines Required	1
		Hazard Insurance Coverage is Not Sufficient	1
		OFAC Check Not Completed and/or Cleared	1
		Profit and Loss Does Not Meet Guidelines	1
		Transmittal Summary is Partial	1
		Hazard Insurance Coverage is Not Sufficient.	1
		Unresolved derogatory credit	1
		Housing history does not meet guidelines	1
		Income and Employment Do Not Meet Guidelines	1
		Total Credit Grade (A) Exceptions:	97
	B	Qualifying DTI exceeds Guideline Maximum Allowable	2
		Guideline Seasoning not Met	1
		Manual Underwrite is Missing	1
		Total Credit Grade (B) Exceptions:	4
Compliance	A	No Compliance Findings	52
		Higher-Priced Mortgage Loan	20
		Higher-Priced Mortgage Loan Test	16
		CA AB 260 Higher-Priced Mortgage Loan Test	3
		TRID Initial Closing Disclosure Date and Funding Date Validation Test	2
		Charges That Cannot Increase Test	2
		MD COMAR Higher-Priced Mortgage Loan Test	1
		Purchase Contract does not Match Final CD	1
		Total Compliance Grade (A) Exceptions:	97
Property	A	No Property Findings	88
		Loan Purpose is Purchase but Purchase Contract Doc is Missing	1
		Purchase price is < original balance	1
		Property Condition Rating Does Not Meet Program Requirements	1
		Total Property Grade (A) Exceptions:	91
	B	Ineligible Property	1
		Total Property Grade (B) Exceptions:	1

Event Grade Definitions

Final Loan Grade
A	Loan meets Credit, Compliance, and Valuation Guidelines
B	The l○an substantially meets published Client/Seller guidelines and/or eligibility in the validation of income, assets, or credit, is in material c○mpliance with all applicable laws and regulati○ns, and the value and valuation methodology is supported and substantially meets published guidelines.
C	The l○an does not meet the published guidelines and/or violates one material law or regulation, and/or the value and valuation methodology is not supported or did not meet published guidelines.
D	Loan is missing documentation to perform a sufficient review.

Credit Event Grades
A	The l○an meets the published guidelines without any exceptions. The employment, income, assets and occupancy are supported and justifiable.The borr○wer’s willingness and ability to repay the loan is documented and reasonable.
B	The l○an substantially meets the published guidelines but reasonable compensating factors were considered and documented for exceeding published guidelines.  The employment, income, assets and occupancy are supported and justifiable.  The borrower’s willingness and ability to repay the l○an is documented and reasonable.
C	The l○an does not substantially meet the published guidelines.  There are not sufficient compensating factors that justify exceeding the published guidelines.  The employment, income, assets or occupancy are not supported and justifiable.  The borrower’s willingness and ability to repay the l○an were not documented or are unreasonable.
D	There was not sufficient documentation to perform a review or the credit file was not furnished.

Compliance Event Grades
A	The l○an is in c○mpliance with all applicable laws and regulati○ns. The legal documents accurately reflect the agreed upon l○an terms and are executed by all applicable parties.
B	The l○an is in material c○mpliance with all applicable laws and regulati○ns. The legal documents accurately reflect the agreed upon l○an terms and are executed by all applicable parties. Client review required.
C	The l○an vi○lates ○ne material law or regulation.  The material discl○sures are absent ○r the legal documents do n○t accurately reflect the agreed upon l○an terms ○r all required applicants did n○t execute the documents.
D	There was n○t sufficient documentati○n to perf○rm a review ○r the required legal documents were n○t furnished.

Valuation Event Grades
A	The value is supported within 10% of the original appraisal by the AVM or there are other supporting documents in the originators loan file package (CDA, Field Review or Second Appraisal). The appraisal was performed on an "as-is" basis and the property is complete and habitable at origination.  The appraiser was appropriately licensed and used GSE approved forms.
B	The value is not supported within 10% of the original appraisal by the AVM and there are no other valuation support documents in the loan file provided by the Seller.  The valuation methodology substantially meets the published guidelines but reasonable compensating factors were considered and documented for exceeding guidelines.  The appraisal was performed on an "as-is" basis and the property is complete and habitable.  The appraiser was appropriately licensed and used GSE approved forms.
C	The value is not supported within 10% of the original appraisal.  The valuation methodology did not meet the published guidelines and there were not sufficient compensating factors for exceeding published guidelines.  The property is in below “average” condition or the property is not complete or requires significant repairs.  The appraisal was not performed on an “as is” basis.  The appraiser was not appropriately licensed or did not use GSE approved forms.
D	The file was missing the appraisal or there was not sufficient valuation documentation to perform a review.