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,
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.
