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The Next Subprime RMBS Comes from Invictus Capital

Invictus Capital Partners, a nonprime mortgage lender based in Washington, D.C., is making its debut in the securitization market.

The $145 million Verus Securitization Trust 2017-1 has credit ratings from two firms: Morningstar and Kroll Bond Rating Agency. Both assigned triple-A ratings to the senior tranche which benefits from 39.8% credit support.

It's only the second offering shelf to be rated by any ratings agency since the financial crisis. Caliber Home Loans did three transactions from its COLT shelf last year, all of them rated by Fitch Ratings.

Four other firms tested the market last year with unrated deals. But Fitch has said that three nonprime lenders, Angel Oak, Deephaven and Citadel, have obtained originator or aggregator reviews, a precursor to deal ratings.

Like other nonprime deals, Verus 2017-1 is backed by a mixture of loans to borrowers with strong credit who chose to use bank statements to verify their income, rather than more traditional documents such as tax returns (62.1%) and loans to borrowers with a prior foreclosure or bankruptcy (25.5%). Other loans are not eligible to be purchased by Fannie Mae or Freddie Mac because they are for business purposes or to foreign nationals.

Verus 2017-1 has some risks typical of prime jumbo RMBS: it has a heavy concentration of loans in California (57.9%) and to loans greater than $1 million (29%).

Borrowers have a significant amount of equity in their homes; the weighted average loan-to-value ratio is 69.2% and the combined LTV, including other debt secured by the property, is 69.9%.

That's just slightly higher than the average of 68.7% for the nine prime jumbo transactions KBRA rated in 2016. And it's well below the CLTVs for the three COLT securitizations, which ranged from 75.0% and 78.6%

The borrowers in Verus 2017-1 also have a median annual gross income of over $173,000, the highest annual amount for a rated nonprime transaction, which have averaged closer to $153,000, according to KBRA. This level of income is nearly 2.7x as high as the median national income for owner-occupied properties in 2015, according to the American Housing Survey, and 2.1x as high as the same median income metric for the Los Angeles metro area, the pools' largest CBSA concentration.

Approximately 79.2% by balance are non-QM loans, approximately 14.7% are rebuttable presumption QM loans and approximately 6.1% are exempt from QM categorization.

Invictus began acquiring loans in August 2015 and has a limited history for which to evaluate loan performance.

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