Invictus tests market for new kind of single-family rental RMBS
Invictus Capital Partners is testing the waters for residential mortgage bonds backed exclusively by investment properties.
The 860 loans backing its latest transaction, the $258.4 million Verus Securitization Trust, 2018-INV1, are all used for “business purpose investor loans,” according to S&P Global Ratings. Just under half (48.3%) finance single-family homes, another 24. 2% finance two- to four-family homes, 18.3% finance “planned unit development,” and the remaining 9.1% finance condominiums.
It’s a product that Invictus and others have offered for some time but have not securitized on their own, most likely because they did not have sufficient volume.
In its presale report, S&P noted that bonds backed entirely by investment properties have existed for the past several years, but these deals, which are typical known as single-family rental securitizations, are typically backed by a single mortgage on a portfolio of properties owned by a single entity. By comparison, the properties ultimately securing Verus 2018-INV1 are operated by multiple investors, and are underwritten to the borrower's personal income, as well as rental income. The properties backing Verus 2018-INV are also more geographically diverse.
“Most non-QM issuers have this type of product, and they are sprinkled into securitizations with other kinds of non-QM products, such as bank statement loans and loans to borrowers with prior credit events,” Jeremy Schneider, a senior director at S&P, said in a telephone interview.
“Right now," overall non-QM securitization "represents less than a percentage of total" annual residential mortgage origination, "which is $1.5 trillion to $2 trillion a year," Schneider said. "If that starts to grow, we may see issuers want to have an offering shelf specific to each type of non-QM product.”
Schneider said that business-purpose investor loans are typically riskier than other kinds of non-QM loans both because they are investment properties, and not owner-occupied properties, and because they are underwritten to the rental income, and not just the borrower's income.
“We typically see AAA loss projections in non-QM deals in the mid-20s, versus the mid-30s here,” he said.
S&P expects to assign an AAA to the senior tranche of notes to be issued, which benefit from 38.65% credit enhancement.