Morningstar DBRS Finalizes Provisional Credit Ratings on Verus Securitization Trust 2024-INV1

DBRS, Inc. (Morningstar DBRS) finalized its provisional credit ratings on the following Mortgage-Backed Notes, Series 2024-INV1 (the Notes) issued by Verus Securitization Trust 2024-INV1 (VERUS 2024-INV1):

-- $235.9 million Class A-1 at AAA (sf)
-- $26.7 million Class A-2 at AA (sf)
-- $46.7 million Class A-3 at A (high) (sf)
-- $33.3 million Class M-1 at BBB (sf)
-- $20.3 million Class B-1 at BB (sf)
-- $14.7 million Class B-2 at B (low) (sf)

The AAA (sf) credit rating on the Class A-1 Notes reflects 39.10% of credit enhancement provided by subordinate notes. The AA (sf), A (high) (sf), BBB (sf), BB (sf), and B (low) (sf) credit ratings reflect 32.20%, 20.15%, 11.55%, 6.30%, and 2.50% of credit enhancement, respectively.

Other than the specified classes above, Morningstar DBRS does not rate any other classes in this transaction.

This transaction is a securitization of a portfolio of fixed- and adjustable-rate, investor debt service coverage ratio (DSCR), first-lien residential mortgages funded by the issuance of the Notes. The Notes are backed by 1,000 mortgage loans with a total principal balance of $387,374,857 as of the Cut-Off Date (March 1, 2024).

VERUS 2024-INV1 represents the 12th securitization issued by the Sponsor (VMC Asset Pooler, LLC) or a related Invictus Capital Partners, LP entity, backed entirely by business-purpose investment loans, predominantly underwritten using DSCR. The originators for the mortgage pool are Hometown Equity Mortgage, LLC (27.2%) and other originators, each comprising less than 10.0% of the mortgage loans. Newrez LLC doing business as (dba) Shellpoint Mortgage Servicing (100%) is the servicer of the loans in this transaction.

The mortgage loans were underwritten to program guidelines for business-purpose loans that are designed to rely on property value, the mortgagor’s credit profile, and the DSCR, where applicable. Because the loans were made to investors for business purposes, they are exempt from the Consumer Financial Protection Bureau’s Ability-to-Repay rules and TILA-RESPA Integrated Disclosure rule.

The Sponsor, directly or indirectly through a majority-owned affiliate, will retain an eligible vertical interest in each class of Notes in the required amount of not less than 5% of each class of Notes to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder. Such retention aligns Sponsor and investor interest in the capital structure.

Nationstar Mortgage LLC dba Mr. Cooper Master Servicing will be the Master Servicer. Wilmington Savings Fund Society, FSB will act as the Indenture and Owner Trustee. Computershare Trust Company, N.A. (rated BBB with a Stable trend by Morningstar DBRS) and Deutsche Bank National Trust Company will act as the Custodians.

On or after the earlier of (1) the Payment Date occurring in March 2027 or (2) the date when the aggregate stated principal balance of the mortgage loans is reduced to 30.00% of the Cut-Off Date balance, the Note Owner(s) representing 50.01% or more of the Class XS Notes (Optional Redemption Right Holder) may redeem all of the outstanding Notes at a price equal to the greater of (A) the class balances of the related Notes plus accrued and unpaid interest, including any cap carryover amounts and (B) the class balances of the related Notes less than 90 days delinquent with accrued unpaid interest plus fair market value of the loans 90 days or more delinquent and real estate owned properties. After such purchase, the Depositor must complete a qualified liquidation, which requires (1) a complete liquidation of assets within the Trust and (2) proceeds to be distributed to the appropriate holders of regular or residual interests.
The principal and interest (P&I) Advancing Party will fund advances of delinquent P&I on any mortgage until such loan becomes 90 days delinquent. The Advancing Party or Servicer has no obligation to advance P&I on a mortgage approved for a forbearance plan during its related forbearance period. The Servicer, however, is obligated to make advances in respect of taxes, insurance premiums, and reasonable costs incurred in the course of servicing and disposing properties.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the Class A-1, A-2, and A-3 Notes (Senior Classes) subject to certain performance triggers related to cumulative losses or delinquencies exceeding a specified threshold (Trigger Event). However, in contrast to the prior Morningstar DBRS-rated transaction from this shelf, in the case of a Credit Event, principal proceeds will be allocated to cover interest shortfalls on Class A-1 and then in reduction of the Class A-1 note balance, before a similar allocation of funds to Class A-2 (Interest, Principal, Interest, and Principal). Prior issuance would typically allocate principal (after a Credit Event) to cover interest shortfalls on the Class A-1 and Class A-2 Notes (Interest, Interest, Principal, and Principal) before being applied sequentially to amortize the balances of the senior and subordinated notes. In the current transaction, and the prior transaction, for the Class A-3 Notes (only after a Credit Event) and for the mezzanine and subordinate classes of notes (both before and after a Credit Event), principal proceeds will be available to cover interest shortfalls only after the more senior notes have been paid off in full.

Excess spread can be used to cover realized losses before being allocated to unpaid Cap Carryover Amounts due to Class A-1 down to Class B-1. The Class A-1, A-2, and A-3 fixed-rate coupons step up by 1.00% on and after the payment date in April 2028 (Step-Up Date). Of note, on and after the distribution date in April 2028, interest and principal otherwise available to pay the Class B-3 interest and interest shortfalls may be used to pay any Class A Cap Carryover amounts.

The credit ratings reflect transactional strengths that include the following:

-- Improved underwriting standards,
-- Certain loan attributes,
-- Robust pool composition, and
-- Satisfactory third-party due-diligence review.

The transaction also includes the following challenges:

-- 100% investor loans,
-- Three-month advances of delinquent P&I,
-- Representations and warranties framework, and
-- Advancing Party's financial capability.

The full description of the strengths, challenges, and mitigating factors is detailed in the related report.

Morningstar DBRS’ credit rating on the Notes addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are listed at the end of this press release. The associated financial obligations for each of the rated Notes are the Interest Payment Amount, any Interest Carryforward Amount, and the related Note Amount.

Morningstar DBRS’ credit ratings on Classes A-1, A-2, and A-3 also address the credit risk associated with the increased rate of interest applicable to these Notes if they remain outstanding on the step-up date (April 2028) in accordance with the applicable transaction documents.

Morningstar DBRS’ credit ratings do not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations. For example, in this transaction, Morningstar DBRS’ credit ratings do not address the payment of any cap carryover amounts.

Morningstar DBRS’ long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit ratings is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology (August 31, 2023), https://dbrs.morningstar.com/research/420108.

Other methodologies referenced in this transaction are listed at the end of this press release.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of the final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- Assessing U.S. RMBS Pools Under the Ability-to-Repay Rules (April 28, 2023), https://dbrs.morningstar.com/research/413297

-- Interest Rate Stresses for U.S. Structured Finance Transactions (February 26, 2024), https://dbrs.morningstar.com/research/428623

-- Third-Party Due-Diligence Criteria for U.S. RMBS Transactions (September 8, 2023), https://dbrs.morningstar.com/research/420333

-- Representations and Warranties Criteria for U.S. RMBS Transactions (May 16, 2023), https://dbrs.morningstar.com/research/414076

-- Legal Criteria for U.S. Structured Finance (December 7, 2023), https://dbrs.morningstar.com/research/425081

-- Operational Risk Assessment for U.S. RMBS Originators (August 31, 2023), https://dbrs.morningstar.com/research/420106

-- Operational Risk Assessment for U.S. RMBS Servicers (August 31, 2023), https://dbrs.morningstar.com/research/420107

For more information on this credit or on this industry, visit dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.