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Invictus returns with $368.9M investor-property RMBS

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Invictus Capital Partners is marketing its second offering this year of residential mortgage bonds backed exclusively by loans on investment properties.

The $368.94 million Verus Securization Trust 2019-INV2 is backed by investor mortgage loans on 1,042 rental properties, according to presale reports from S&P Global Ratings and Morningstar Credit Ratings. The loans were originated by 76 different lenders, although a large portion were issued by Sprout Mortgage (30.46% of the pool) and Athas Capital Group (11.02%).

This is Invictus’ 12th residential mortgage-backed securitization and the fourth to involve investor loans since Invictus launched an INV shelf in 2018.

The loans include fixed- and adjustable-rate terms, and 27.3% have interest-only periods. Single-family residences make up 45.8% of the mortgages; 12.9% are secured by planned-unit developments, 14.1% involve condominiums and the remaining 27% are backed to two-to-four-family properties.

All of the loans are exempt from qualified mortgage/ability-to-repay rules. The loans are considered higher risk than standard residential owner-occupied loans, since most (74.1% of the pool) are underwritten to the rental income of the property rather than to the borrower’s FICO score and income.

In its two most recent deals, Invictus has produced a majority of collateral from loans underwritten to the rental income of the property, rather than the borrowers’ FICO score or other credit history characteristics. Last December, that share was only 42%.

Like Invictus’ prior investor-only property securitizations, the pool includes a significant portion of loans issued to foreign national borrowers, exceeding 9% of the collateral. Also, the deal has a higher exposure (27%) of two-to-four-family dwellings, which have a greater loss- performance history. In addition, a “significant” share of the loans — 53% of the pool’s collateral — were cash-out loans, according to S&P.

The average loan balance is $345,773, with an average rate of 7.1% and weighted average seasoning of three months. The debt-to-service coverage ratio is 1.18x, similar to Invictus’ previous investor-property deal in March that involved 63 lenders. The pool has a weighted average FICO of 721.

Morningstar noted the borrowers have a “significant amount of equity” with a weighted average current LTV of 63.3%, as measured by Morningstar, and all of the loans were current. But the agency also noted only 45.9% of the properties were leased. Morningstar also accounted for the risk of the number of large-balance loans in the pool, with 6.2% of the loans making up 25.1% of the pool balance.

The Verus 2019-INV2 capital stack consists of three senior note classes, including a $241.47 million Class A-1 tranche with AAA ratings from S&P and Morningstar. A Class A-2 tranche sized at $28.4 million is rated AA by S&P and AA+ by Morningstar, while a Class A-3 tranche totaling $39.48 million is rated A by S&P and AA- by Morningstar.

All the senior tranches, along with a $24.9 million mezzanine tranche (rated BBB- by S&P) and two subordinate tranches — $16.23 million of Class B-1 notes (BB-) and $11.25 million of Class B-2 notes (B) are all fixed-rate bonds.

Invictus will also market an unrated Class B-3 subordinate tranche of $7.2 million in notes to be priced on the pool’s net weighted-average coupon rate.

Investors will also have to opportunity to obtain notes entitling them to excess servicing and monthly excess cash flows, as well as small prepayment premiums.

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