Velocity Commercial Capital Loan Trust, 2022-5, is preparing to issue a series of mortgage-backed securities (MBS) secured by a pool of fixed-rate and adjustable first-lien residential mortgages, raising about $254.2 million from the capital markets.
Some 617 mortgages—comprised largely of residential investor loans, 70.7%, secure the collateral pool as of the cut-off date of September 1, 2022. A much smaller proportion of the pool, 29.3%, are small-balance commercial mortgages (SBC), collateralized by various types of commercial, multifamily rental, and mixed-use properties, according to a pre-sale report from Morningstar | DBRS.
Velocity Commercial Capital, the main subsidiary of Velocity Financial, originated or acquired all of the loans in the transaction from a network of independent mortgage brokers, according to DBRS. The company primarily originates business-purpose loans secured by one- to four-unit residential rental and small commercial properties around the country. The loans range in size from $75,000 to $10 million in the U.S., according to the rating agency.
Barclays Capital, Global Markets and Performance Trust Capital Partners will all purchase notes from the deal, initially. PHH Mortgage Corporation will service the notes, which will be repaid through a modified pro rata structure.
Principal distributions allow for amortization of all senior and subordinate bonds based on credit enhancement targets set at different levels for performing (same CE as at issuance) and nonperforming loans, DBRS said. The rating agency added that in comparison to a sequential pay structure, a modified pro rata scheme is more attuned to the timing of defaults and losses. Losses can be strategically applied when the amount of credit support is reduced, due to related principal paying down over time, the rating agency said.
DBRS intends to assign ratings to about twelve classes of notes, and ratings are set to range from 'AAA' on the classes A-S and A-IO, to 'AA' on the senior class M notes, and then 'A' through 'B' on classes M2 through M5.
The notes have initial enhancement, including 41.7% on the class A-S class and 38.4% on the M1-A class.
