Invictus gets easier AAA from Morningstar on next biz loan RMBS

Invictus Capital Partners’s third offering of mortgage bonds backed by rental properties features some very large loans.

Just 6.4% of the 976 loans backing the $731 million transaction, Verus 2019-INV1, account for more than a quarter of the entire pool balance (25.2%), according to Morningstar Credit Ratings. That’s only slightly higher than the concentration in the prior deal, in which 6.1% of loans accounted for 25.3% of the pool balance. “This increases the loss impact of the pool from the high-balance loans,” the presale report states.

Some of the largest loans in the new deal may be backed by a two- to four-family homes, which account for 31.6% of the balance. That’s a higher percentage that the December deal, in which just 20.2% of loans financed two- to four-family homes, according to presale reports for that transaction.

The new deal also contains a few loans (1.9%) that are backed by more than one property and so presumably are on the large side; the largest number of properties backing a single loan is 17. (Morningstar notes that the properties backing such loans “are generally in close proximity and make property management relatively easy.”)

Many of the credit characteristics of Verus 2019-INV1 are similar to those of the deal Invictus completed in December. Borrowers have good credit and substantial equity in the properties; the weighted average original loan-to-value ratio is 62.7%, (vs 62.1%) and the weighted average original FICO score is 711.

However, the weighted average seasoning of the loans is just two months, versus six months for the prior deal. All of the loans, which are serviced by either Specialized Loan Servicing or Shellpoint, are making timely payments.

Another weakness, according to Morningstar, is the fact that only about 40.8% of the properties were leased with fully executed arm’s-length agreements. But that's down from 45.9% in the prior deal.

The properties are distributed across 34 states and the District of Columbia. California and New York have the largest concentration of properties with 59.7%. That’s much less concentrated than the prior deal, in which 75.1% of the loans were in California, Florida and New York.

Morningstar expects to assign an AAA rating to the $237 million senior tranche of notes to be issued in Verus 2019-INV1, which benefits from 36.1% credit enhancement. That’s nearly 4 percentage points less than the AAA rated tranche of the prior deal, which had credit enhancement of 40.35%.