First-lien, prime residential mortgages are securing the Visio 2019-2 Trust, which will raise $202,682,000 from the market, and which has collateral that was funded by the Mortgage Pass-Through Notes, Series 2019.
The collateral pool continues the story of originators and sponsors employing tighter underwriting standards for creating and securitizing residential mortgage loans, according to Morningstar | DBRS’s description of the deal structure.
The Visio 2019-2 notes, are backed by 1,188 mortgage loans, 13.7% of which were previously securitized by Residential Credit Opportunities, the deal’s sponsor. These loans are investor loans, extended to borrowers that used rental income to qualify for the mortgages.
The type of housing ranges, according to S&P Global, and includes single-family residential properties, planned-unit developments, condominiums, and two- to four-family residential properties.
Visio Financial Services, was the sole originator of the entire mortgage pool collateralizing the Visio 2019-2 Trust. The deal is expected to close on Oct. 30.
Visio’s underlying pool is comprised of 38.2% fixed-rate mortgages, and have the lowest default risk. Hybrid adjustable-rate mortgages accounted for 61.8% of the pool, and have initial fixed-rate periods of five to seven years.
The sponsor can, but is not obligated to, purchase any mortgage loan that becomes 60 days delinquent or more, and do so under the Mortgage Bankers Association method at par plus interest. The purchases, however, cannot exceed 10% of the principal total balance as of the cut-off date.
Yet the deal had several challenges and mitigating rating factors. While lower loan-to-value ratios might be seen as a positive credit characteristic, Morningstar | DBRS believes it also suggests that it a lower LTV might be compensating for other riskier loan characteristics.
Visio’s representations and warranties framework was also seen as a potential issue. Its R&W framework is slightly weaker than other post-crisis securitization frameworks, according to Morningstar | DBRS. Instead of initiating an automatic review when a loan becomes seriously delinquent, according to Morningstar | DBRS, Visio’s delays mandatory reviews.
As for the ratings, Morningstar | DBRS assigned "AAA" to the Class A-1, and the ratings agency stopped there.
S&P Global assigned "AA" to the A-1 class, "AA" to A-2, "A" to A-3, "BBB" to the M-1, "BB" to the B-1 class and "B" to the B-2. Other classes, XS and R, were unrated.
