A portfolio of mostly nonqualified mortgages and home loans on investment properties will secure a $606 million securitization from the Verus Securitization Trust, 2023-4.
The current deal's underlying collateral includes a mix of fixed- and adjustable-rate mortgages, as well as interest-only products. Compared with several previous Verus Securitization deals dating back to Verus 2022-8, the current transaction has the highest concentration of ARMs, at 33.9%. ARMS actually accounted for 10.2% of the Verus 2022-8 collateral pool, according to a pre-sale report from Fitch Ratings.
In another significant change, the 1,178 loans in Verus 2023-4 had the lowest concentration of interest-only mortgages, just 15.5%, compared with 29.7% in Verus 2022-8 and 19.1% in Verus 2023-2, according to Fitch. Similar to previous deals Verus 2023-4 sourced the mortgages that secure the notes from a range of originators. This time around Hometown Equity Mortgage accounted for the highest percentage, accounting for 19.0%.
Fitch observed that a handful of firms, which it considers acceptable, provided due diligence for the underlying loans—SitusAMC, Clayton Services, Clarifii, Evolve Mortgage Services and Infinity IPS. The due diligence results align with industry averages and all of them received A or B grades, giving the deal a bit of a credit lift, the rating agency said.
Morgan Stanley is lead underwriter on the deal, with Shellpoint Mortgage Servicing acting as servicer, Fitch said.
Further, the collateral was written to prime borrowers. The loans have a balance of $514,811 and were extended to borrowers with model FICO scores of 728 on a weighted average (WA) basis, original debt-to-income ratios of 48.3% and liquid reserves of $150,526.
Yet the deal has a number of credit challenges. For one, some 39.6% of the pool is concentrated in California, and its MSA concentration is moderate. The Los Angeles MSA accounts for 22.5% of the pool, New York City represents 11.1%, and Miami accounts for 7.1%.
Verus 2023-4 will issue about seven classes of fixed-rate notes, and assign 'AAA' ratings to the $399.9 million, class A-1 notes; 'AA' to the class A-2 notes; 'A' to the class A-3 notes; and 'BBB-' to the M-1 notes.
