Proceeds from principal can be used to make up for shortfalls to the notes, but those shortfalls on the class A2 and subordinate bonds will not be paid from principal proceeds until the senior classes are retired.
The senior certificates get credit protection from a specified lockout period, when the subordinate classes will receive no unscheduled principal payments from the collateral mortgages.
Alternative income documentation underwriting accounted for 61.9% of the collateral, compared with 55.2% of the underlying loans in the previous deal.
Up to 68% of the portfolio assets were restructured. The securitization has a grace period with term extension that allows borrowers to pay interest-only.
A vast majority of the collateral pool balance, 82.6%, are mortgages used to purchase primary residences, and just 17.4% finance second homes.
Alternative documentation accounts for 37.9% of the pool balance, compared with 24.6% on the 2024-NQM4 deal.
Borrowers had an original FICO score of 774. A little over a quarter of the borrowers, 25.1%, are self-employed.
Atlas SP structures deal with a "meaningful" concentration of investment properties. Still, it meets investor demand.
The deal mitigates mortgage-pool risk with CLO credit strengths
Unlike some recent RMBS deals, both exclude riskier interest-only loans and those supporting investment properties.
Legacy RMBS structured to withstand challenging mortgage market
Top banks are underwriting the deal, but most of the securitization's loans lack documentation.
Aggregator counters the risk of loans' low starting rate with a strong borrower profile.
The new deal will increase the sponsor's 2024 issuance to more than $3 billion.
The second-lien loans face low recovery post-default, especially if home prices drop.
More than 90% of the loans were underwritten without full documentation, raising default probability.
Underwriting methods have been steadily shifting to traditional full documentation, which accounts for 13.3% in the VERUS 2024-9, KBRA said, its largest share since VERUS 2024-6.
Notes will repay investors through a modified sequential-payment structure. Senior notes will repay on a pro rata basis. Otherwise, the principal classes will repay principal until the balance in the senior classes equal zero.
The notes benefit from credit enhancement levels of 30.45%, 24.3%, 13.8%, 8.65%, 5.00% and 2.05% on the A1, A2, A3, M1, B1, B2 and B3 tranches, respectively.
The underlying assets have an original weighted average CLTV ratio of 70.4%. Assets with original CLTV ratios exceeding 80% represent 26.1% of the pool's balance.
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