Verus International: DBRS Morningstar finalizes provisional ratings of Verus Securitization Trust 2021-5


DBRS, Inc. (DBRS Morningstar) has finalized its provisional ratings on the following Mortgage Backed Notes, Series 2021-5 (the Notes) issued by Verus Securitization Trust 2021-5 (the Trust).

$ 471.6 million Class A-1 to AAA (sf)

$ 38.3 million Class A-2 at AA (sf)

$ 68.4 million Class A-3 to A (sf)

$ 38.3 million Class M-1 to BBB (sf)

$ 25.1 million Class B-1 to BB (sf)

$ 18.6 million Class B-2 to B (sf)

Other than the categories noted above, DBRS Morningstar does not rate any other category in this transaction.

The AAA (sf) the rating of the Class A-1 notes reflects 30.35% of the credit enhancement provided by the subordinated notes. AA (sf), A (sf), BBB (sf), BB (sf) and B (sf) ratings reflect 24.70%, 14.60%, 8.95%, 5.25% and 2, respectively. 50% of the credit enhancement.

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on Verus Securitization Trust 2021-5 (Verus 2021-5 or the Fiducie), a securitization of a portfolio of first rank residential mortgage loans mainly at fixed and variable rate, at prime and non-preferred rates, financed by the issuance of mortgage-backed notes, series 2021-5 (the banknotes). The notes are backed by 1,136 mortgage loans with a total principal balance of $ 677,075,323 at the deadline * (September 1st, 2021).

After the related pre-sale report was released, there were loans with minimum balance updates. The notes are backed by 1,141 mortgage loans with a total principal balance of $ 678,534,824 in the pre-sale report. Unless stated otherwise, all mortgage statistics in this report are based on the pre-sale report balance.

The main initiator of the mortgage pool is Calculated Risk Analysis, LLC doing business like Excel capital (11.7%). The remaining originators each represent less than 10.0% of mortgages. The loan repairers are Shellpoint Mortgage Servicing (85.5%); Specialized loan service (4.9%); Fay Service, LLC (6.3%); and Lima One Capital, LLC (0.7%).

Although the mortgages were made to satisfy the Consumer Financial Protection Bureau The Repayment Ability Rules (ATR), they were designed for borrowers who are generally not eligible for agency, government or private label jumbo products for various reasons. Under Qualified Mortgage (QM) / ATR rules, 49.1% of loans are designated as non-QM, 0.1% are designated as QM Safe Harbor, and 0.1% are designated as rebuttable presumption QM. About 50.7% of loans are made to investors for business purposes and, therefore, are not subject to QM / ATR rules.

The Sponsor, directly or indirectly through a majority-owned subsidiary, will retain an eligible vertical interest, representing at least 5% of the Securities to meet the credit risk retention requirements under Section 15G of the Securities Exchange. Act of 1934 and regulations promulgated below.

On or after the earliest of the following dates: (1) the payment date occurring in September 2024 or (2) the date on which the aggregate stated principal balance of the mortgage loans is reduced to 30% of the Deadline balance, the Administrator, at the option of the Issuer, may redeem all outstanding Notes to a price equal to the greater of (A) the category balances of the relevant Notes plus accrued and unpaid interest, including the limit carry forward amounts and (B) the category balances of the relevant Notes overdue for less than 90 days with unpaid accrued interest plus the fair market value of 90-day or more loans of past due and owned real estate. After such a purchase, the depositor must effect a qualified liquidation, which requires (1) a complete liquidation of the assets within the trust and (2) the proceeds must be distributed to the appropriate holders of regular or residual interests.

The director and Interest Advancement Part (P&I) or Servicer (for loans managed by SLS) will fund arrears in arrears (P&I) on any mortgage until that loan becomes 90 days past due. The P&I Advancement Party or the service agent has no obligation to advance P&I on an approved mortgage for a forbearance plan during its related forbearance period. Repairers, however, are required to advance taxes, insurance premiums and reasonable costs incurred in connection with the maintenance and disposition of properties.

This transaction incorporates a sequential payment cash flow structure with a pro rata between the senior tranches. Principal proceeds can be used to cover missing interest on Class A-1 and A-2 Notes Sequentially (IIPP) after a trigger event. For more subordinated Notes, the principal proceeds can be used to cover interest deficits as the higher ranking Notes are paid in full. In addition, excess margin can be used to cover realized losses and depreciation amounts of bonds from the previous period before being allocated to the unpaid limit carry forward amounts from class A-1 to class B-. 2.

About 36.8% of loans were taken out under a debt service coverage ratio program of real estate investor loans and 5.1% were taken out under an investor loan program focused on real estate. Both programs allow borrowers to benefit from cash flow / rental income to qualify borrowers as income.

Impact of the coronavirus

The coronavirus disease (COVID-19) pandemic and the resulting isolation measures caused an immediate economic contraction, leading to sharp increases in unemployment rates and cuts in income for many consumers. Shortly after the start of the pandemic, DBRS Morningstar saw an increase in defaults for many asset classes of Residential Mortgage Backed Securities (RMBS).

These mortgage defaults were mostly in the form of withholdings, which are typically periods of short-term payment relief that can work very differently from traditional defaults. At the start of the pandemic, the ability to defer mortgage payments was widely available, which pushed abstentions to a high level. When the dust settled, loans with coronavirus-induced tolerance in 2020 performed better than expected, thanks to government assistance, low loan-to-value ratios and acceptable underwriting in the mortgage market in general. Over the past few months, in almost all RMBS asset classes, defaults have gradually trended downward, as forbearance periods end for many borrowers.

As of the deadline, no loans are subject to an active coronavirus-related forbearance plan with the duty officer.

For more information on rating methodologies and the coronavirus, please see the following DBRS Morningstar press releases and comments: “DBRS Morningstar Provides Update on Rating Methodologies in Light of Measures to Contain Coronavirus Disease (COVID-19), »Dated March 12, 2020; ‘DBRS Morningstar Global Structured Finance Rating Methodologies and Coronavirus Disease (COVID-19),’ dated March 20, 2020; and “Basic Macroeconomic Scenarios for Rated Sovereigns”, dated September 8, 2021.

Ratings reflect transactional strengths which include the following:

Robust loan attributes and pool composition.

Satisfactory third party due diligence review.

Improved underwriting standards.

The transaction also includes the following challenges:

Non-prime, non-QM and investor loans.

The framework of representations and guarantees.

Three-month advances of overdue P&I.

The P&I Advance Group and the financial capacity of SLS.

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

A description of how DBRS Morningstar views ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social and Governance Risk Factors in Credit Ratings at https: / /www.dbrsmorningstar.com/research/ 373262.

Remarks:

All figures are in we dollars, unless otherwise specified.

The main methodology is RMBS Insight 1.3: we Residential Mortgage Backed Securities Model and Rating Methodology (April 1, 2020), which can be found on dbrsmorningstar.com under Methodologies and Criteria.

For more information on rating methodologies and coronavirus disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information on structured finance rating methodologies and coronavirus disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

The rated entity or its related entities participated in the rating process for this rating action. DBRS Morningstar has 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 more information on the sensitivity of the assumptions used in the rating process.

The full report providing additional analytical details is available by clicking on the link under Related Documents below or by contacting us at [email protected]

For more information on this credit or industry, visit www.dbrsmorningstar.com or contact us at [email protected]

DBRS, Inc.

140 Broadway, 43rd floor

New York, New York State 10005 United States

Phone. +1 212 806-3277

* Description and disclosure of mortgage loan guarantees in this report reflects approximate aggregate characteristics as of the deadline, unless otherwise noted.

Assessments

Date Issued	Debt Rated	Action	Rating	Trend	Attributesi

United States = Principal Analyst based in the United States

CA = Lead Analyst based at Canada

EU = Lead Analyst based in the EU

UK = Senior analyst based at UK

E = EU approved

U = UK approved

Unsolicited participation with access

Unsolicited participation without access

Unsolicited Non-participant

23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class A-1	Provis.-Final	AAA (sf)	--	US
23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class A-2	Provis.-Final	AA (sf)	--	US
23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class A-3	Provis.-Final	A (sf)	--	US
23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class M-1	Provis.-Final	BBB (sf)	--	US
23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class B-1	Provis.-Final	BB (sf)	--	US
23-Sep-21 	Mortgage-Backed Notes, Series 2021-5, Class B-2	Provis.-Final	B (sf)	--	US

ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMER AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND ADDITIONAL LIMITATIONS AND INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES, RATING SCALES AND METHODS.

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