Fitch Ratings has assigned expected ratings to Ellington Financial Mortgage Trust 2021-3.

RATING ACTIONSENTITY/DEBT	RATING

EFMT 2021-3

A-1

LT	AAA(EXP)sf 	Expected Rating

A-2

LT	AA(EXP)sf 	Expected Rating

A-3

LT	A(EXP)sf 	Expected Rating

M-1

LT	BBB(EXP)sf 	Expected Rating

B-1

LT	BB(EXP)sf 	Expected Rating

B-2

LT	B(EXP)sf 	Expected Rating

B-3

LT	NR(EXP)sf 	Expected Rating

A-IO-S

LT	NR(EXP)sf 	Expected Rating

XS

LT	NR(EXP)sf 	Expected Rating

R

LT	NR(EXP)sf 	Expected Rating

VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The EFMT 2021-3 certificates are supported by 536 loans with a balance of $257.65 million as of the cut-off date. This will be the third Ellington Financial Mortgage Trust transaction rated by Fitch.

The certificates are secured mainly by non-qualified mortgages (Non-QM) as defined by the Ability to Repay (ATR) rule. Approximately 95% of the loans were originated by LendSure Mortgage Corporation, a joint venture between LendSure Financial Services, Inc. (LFS) and Ellington Financial, Inc. (EFC). The remaining 5% of loans were originated by third-party originators. Rushmore Loan Management Services LLC will be the servicer, and Nationstar Mortgage LLC will be the master servicer for the transaction.

Of the pool, 59% of the loans are designated as Non-QM, and the remaining 41% are investment properties not subject to ATR.

Consistent with the majority of the NQM transactions issued to date, this transaction has a modified sequential payment structure. The structure distributes collected principal pro rata among the class A notes while excluding the subordinate bonds from principal until all three classes are reduced to zero. To the extent that either a cumulative loss trigger event or delinquency trigger event occurs in a given period, principal will be distributed sequentially to the class A-1, A-2 and A-3 bonds until they are reduced to zero.

There is Libor exposure in this transaction. While the majority of the loans in the collateral pool comprise fixed-rate mortgages, 1.94% of the pool is comprised of loans with an adjustable rate based on 1-year LIBOR. The offered certificates are fixed rate and capped at the net weighted average coupon (WAC) or pay the net WAC.

Fitch determined that four loans were in a FEMA declared disaster area for individual assistance for Hurricane Ida. Rushmore confirmed that none of these homes had damage from Hurricane IDA and as a result no adjustment was made.

Fitch ran additional analysis on this transaction and as a result, Fitch's loss expectations are based off of an additional scenario in Fitch's US RMBS Loan Loss model which incorporates updated home prices and macro-economic fundamentals.

KEY RATING DRIVERS

Nonprime Credit Quality (Mixed): The collateral consists mainly of 30-year or 40-year fully amortizing loans that are either fixed-rate, or adjustable rate, and 24% of the loans have an interest only period. The pool is seasoned approximately five months in aggregate, as determined by Fitch. The borrowers in this pool have relatively strong credit profiles with a 742 WA FICO score and 41.3% DTI, as determined by Fitch, and moderate leverage with an original CLTV of 68.3%, which translates to a Fitch calculated sLTV of 77.1%.

Of the pool, 51.9% consists of loans where the borrower maintains a primary residence, while 42.9% comprises an investor property and 5.2% occupy second home; 100% of the loans were originated through a nonretail channel. Additionally, 59% are designated as Non-QM, while the remaining 41% are exempt from QM since they are investor loans.

The pool contains 49 loans over $1 million, with the largest $3.045 million. Fitch determined self-employed non-DSCR borrowers make up 48.4% of the pool, salaried non-DSCR borrowers, 22.1%; and 29.5% are investor cash flow DSCR loans.

Approximately 42.9% of the pool comprises loans on investor properties (13.4% underwritten to the borrowers' credit profile and 29.5% comprising investor cash flow loans) and Fitch considered 35 loans in the pool (4.9%) to be to non-permanent residents. There are no second liens in the pool and none of the loans have subordinate financing.

Fitch considered 100% of the pool to be current, since the eight delinquent loans reported in the transaction documents were delinquent due to a servicing transfer or ACH set up issue. All loans are current as of the Sept. 15, 2021.

Overall, the pool characteristics resemble nonprime collateral, and therefore, the pool was analyzed using Fitch's non-prime model.

Geographic Concentration (Neutral): Approximately 38% of the pool is concentrated in California with relatively low MSA concentration. The largest MSA concentration is in Los Angeles MSA (17.8%) followed by the Miami MSA (6.3%) and the San Bernardino MSA (5.5%). The top three MSAs account for 29.7% of the pool. As a result, there was no adjustment for geographic concentration.

Loan Documentation (Negative): Approximately 83.6% of the pool was underwritten to less than full documentation. 37.4% was underwritten to a 12- or 24-month bank statement program for verifying income, which is not consistent with Appendix Q standards and Fitch's view of a full documentation program. A key distinction between this pool and legacy Alt-A loans is that these loans adhere to underwriting and documentation standards required under the CFPB's Ability to Repay Rule (Rule), which reduces the risk of borrower default arising from lack of affordability, misrepresentation or other operational quality risks due to rigor of the Rule's mandates with respect to the underwriting and documentation of the borrower's ability to repay. Additionally, 6.4% is an Asset Depletion product, 0% is a CPA or PnL product, and 29.5% is DSCR product.

Limited Advancing (Mixed): The deal is structured to six months of servicer advances for delinquent principal and interest. The limited advancing reduces loss severities as there is a lower amount repaid to the servicer when a loan liquidates and liquidation proceeds are prioritized to cover principal repayment over accrued but unpaid interest. The downside to this is the additional stress on the structure side as there is limited liquidity in the event of large and extended delinquencies.

Macro or Sector Risks (Positive): Consistent with the Additional Scenario Analysis section of Fitch's 'U.S. RMBS Coronavirus-Related Analytical Assumptions' criteria, Fitch will consider applying additional scenario analysis based on stressed assumptions as described in the section to remain consistent with significant revisions to Fitch's macroeconomic baseline scenario or if actual performance data indicate the current assumptions require reconsideration.

In response to revisions made to Fitch's macroeconomic baseline scenario, observed actual performance data, and the unexpected development in the health crisis arising from the advancement and availability of Covid-19 vaccines, Fitch reconsidered the application of the coronavirus-related Economic Risk Factor (ERF) floors of 2.0 and used ERF floors of 1.5 and 1.0 for the 'BBsf' and 'Bsf' rating stresses, respectively. Fitch's September 2021 Global Economic Outlook and related base-line economic scenario forecasts have been revised to a 6.2% U.S. GDP growth for 2021 and 3.9% for 2022 following a -3.4% GDP growth in 2020. Additionally, Fitch's U.S. unemployment forecasts for 2021 and 2022 are 5.6% and 4.4%, respectively, which is down from 8.1% in 2020. These revised forecasts support Fitch reverting back to the 1.5 and 1.0 ERF floors described in Fitch's 'U.S. RMBS Loan Loss Model Criteria.'

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Fitch incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper market value declines (MVDs) than assumed at the MSA level. Sensitivity analyses was conducted at the state and national levels to assess the effect of higher MVDs for the subject pool as well as lower MVDs, illustrated by a gain in home prices.

This defined negative rating sensitivity analysis demonstrates how the ratings would react to steeper MVDs at the national level. The analysis assumes MVDs of 10.0%, 20.0% and 30.0% in addition to the model-projected 43.3% at 'AAA'. The analysis indicates that there is some potential rating migration with higher MVDs for all rated classes compared with the model projection. Specifically, a 10% additional decline in home prices would lower all rated classes by one full category.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch incorporates a sensitivity analysis to demonstrate how the ratings would react to steeper MVDs than assumed at the MSA level. Sensitivity analyses was conducted at the state and national levels to assess the effect of higher MVDs for the subject pool as well as lower MVDs, illustrated by a gain in home prices.

This defined positive rating sensitivity analysis demonstrates how the ratings would react to positive home price growth of 10% with no assumed overvaluation. Excluding the senior class, which is already rated 'AAAsf', the analysis indicates there is potential positive rating migration for all of the rated classes. Specifically, a 10% gain in home prices would result in a full category upgrade for the rated class excluding those being assigned ratings of 'AAAsf'.

This section provides insight into the model-implied sensitivities the transaction faces when one assumption is modified, while holding others equal. The modeling process uses the modification of these variables to reflect asset performance in up and down environments. The results should only be considered as one potential outcome, as the transaction is exposed to multiple dynamic risk factors. It should not be used as an indicator of possible future performance.

Best/Worst Case Rating Scenario

International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as prepared by Evolve and AMC. The third-party due diligence described in Form 15E focused on three areas: compliance review, credit review, and valuation review. Fitch considered this information in its analysis. Based on the results of the 100% due diligence performed on the pool, Fitch reduced the overall 'AAAsf' expected loss by 0.44%

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DATA ADEQUACY

Fitch relied on an independent third-party due diligence review performed on 100% of the pool. The third-party due diligence was generally consistent with Fitch's 'U.S. RMBS Rating Criteria.' Evolve and AMC were engaged to perform the review. Loans reviewed under this engagement were given compliance, credit and valuation grades, and assigned initial grades for each subcategory. Minimal exceptions and waivers were noted in the due diligence reports. Refer to the Third-Party Due Diligence section for more detail.

Fitch also utilized data files that were made available by the issuer on its SEC Rule 17g-5 designated website. Fitch received loan-level information based on the American Securitization Forum's (ASF) data layout format, and the data are considered to be comprehensive. The ASF data tape layout was established with input from various industry participants, including rating agencies, issuers, originators, investors and others to produce an industry standard for the pool-level data in support of the U.S. RMBS securitization market. The data contained in the ASF layout data tape were reviewed by the due diligence companies, and no material discrepancies were noted.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

EFMT 2021-3 has an ESG Relevance Score of '4[+]' for Transaction Parties & Operational Risk. Operational risk is well controlled for in EFMT 2021-3, including strong transaction due diligence as well as 'RPS1-' Fitch-rated servicer, which resulted in a reduction in expected losses. This has a positive impact on the credit profile and is relevant to the ratings in conjunction with other factors.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Additional information is available on www.fitchratings.com

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