DBRS Morningstar Assigns Provisional Ratings to Verus Securitization Trust 2019-4

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following Mortgage Pass-Through Certificates, Series 2019-4 (the Certificates) to be issued by Verus Securitization Trust 2019-4 (Trust):

-- $454.2 million Class A-1 at AAA (sf)
-- $454.2 million Class A-1X at AAA (sf)
-- $454.2 million Class A-1B at AAA (sf)
-- $40.5 million Class A-2 at AA (sf)
-- $80.4 million Class A-3 at A (sf)
-- $50.1 million Class M-1 at BBB (sf)
-- $21.8 million Class B-1 at BB (sf)
-- $21.1 million Class B-2 at B (sf)

Class A-1X is an interest-only certificate. The class balance represents a notional amount.

Class A-1B is an exchangeable certificate. This class can be exchanged for combinations of exchange notes as specified in the offering documents.

The AAA (sf) rating on the Class A-1 Certificates reflects 33.30% of credit enhancement provided by subordinated Certificates in the pool. The AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 27.35%, 15.55%, 8.00%, 5.00% and 1.65% of credit enhancement, respectively.

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

This transaction is a securitization of a portfolio of fixed- and adjustable-rate, expanded prime and non-prime, first-lien residential mortgages funded by the issuance of the Certificates. The Certificates are backed by 1,452 mortgage loans with a total principal balance of $680,978,906 as of the Cut-Off Date (October 1, 2019).

The originators for the mortgage pool are Excelerate Capital (14.5%), Sprout Mortgage (12.8%) and other originators, each comprising less than 10.0% of the mortgage loans. The Servicers of the loans are Specialized Loan Servicing LLC (5.7%) and Shellpoint Mortgage Servicing (Shellpoint; 94.3%).

Although the mortgage loans were originated to satisfy the Consumer Financial Protection Bureau’s Ability-to-Repay (ATR) rules, they were made to borrowers who generally do not qualify for agency, government or private-label non-agency prime jumbo products for various reasons. In accordance with the Qualified Mortgage (QM)/ATR rules, 80.5% of the loans are designated as non-QM, 0.6% as QM Rebuttable Presumption and 0.5% as QM Safe Harbor. Approximately 18.4% of the loans are made to investors for business purposes and hence are not subject to the QM/ATR rules.

The sponsor, directly or indirectly through a majority-owned affiliate, will retain an eligible horizontal residual interest consisting of the Class B-2, Class B-3 and Class XS Certificates, representing at least 5% of the Certificates to satisfy the credit risk-retention requirements under Section 15G of the Securities Exchange Act of 1934 and the regulations promulgated thereunder.

On or after the earlier of (1) the three-year anniversary of the Closing Date or (2) the date when the aggregate stated principal balance of the mortgage loans is reduced to 30% of the Cut-Off Date balance, the Administrator, at the Issuer’s option, may redeem all of the outstanding Certificates at a price equal to the class balances of the related Certificates plus accrued and unpaid interest, including any cap carryover amounts. 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 Representation Provider will have the option, but not the obligation, to repurchase any mortgage loan that becomes 90 or more days delinquent at the repurchase price (par plus interest), provided that such repurchases in aggregate do not exceed 10% of the total principal balance as of the Cut-Off Date.

The Servicers (or Advancing Party for loans serviced by Shellpoint) will fund advances of delinquent principal and interest on any mortgage until such loan becomes 180 days delinquent. The Servicers are also obligated to make advances in respect of taxes, insurance premiums and reasonable costs incurred in the course of servicing and disposing of properties.

The transaction employs a sequential-pay cash flow structure with a pro rata principal distribution among the senior tranches. Principal proceeds can be used to cover interest shortfalls on the Certificates as the outstanding senior Certificates are paid in full. Furthermore, excess spread can be used to cover realized losses first before being allocated to unpaid cap carryover amounts up to Class B-2.

The ratings reflect transactional strengths that include the following:

-- Robust loan attributes and pool composition,
-- A satisfactory third-party due diligence review,
-- Improved underwriting standards and
-- Current loans and faster prepayments.

The transaction also includes the following challenges:

-- Representations and warranties framework and provider,
-- Non-prime, non-QM and investor loans,
-- Servicer advances of delinquent principal and interest and
-- The Servicers’ financial capability.

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

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

The principal methodology is RMBS Insight 1.3: U.S. Residential Mortgage-Backed Securities Model and Rating Methodology, which can be found on dbrs.com under Methodologies & Criteria.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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

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