Exploring the Impact of Velocity Commercial Capital's Ratings
Understanding the Preliminary Ratings by KBRA
KBRA, a well-recognized credit rating agency, has recently assigned preliminary ratings to 12 classes of Velocity Commercial Capital 2024-5 (VCC 2024-5) mortgage-backed certificates. This development highlights KBRA’s role in conducting thorough evaluations of various financial instruments.
Details of the VCC 2024-5 Securitization
The VCC 2024-5 represents a significant securitization effort, totaling $300.4 million and backed by 832 small balance commercial loans. These loans are secured by mortgages on 922 residential rental or commercial real estate properties, reflecting a diverse investment strategy.
Loan Portfolio Characteristics
The pool comprises 818 fixed-rate mortgages and 14 floating-rate mortgages. On average, each loan has an outstanding principal balance of $361,046, with a range spanning from $48,736 to $3.7 million. Notably, the weighted average appraisal loan-to-value (LTV) ratio stands at 60.9%, a favorable indicator for investors, coupled with an average FICO score of 700.
Geographic Distribution of Properties
The underlying properties are strategically located in or around 156 Core Based Statistical Areas (CBSAs) across 39 states and the District of Columbia. The top three CBSAs encompass a substantial 33.4% of the entire portfolio. These include:
- New York-Newark-Jersey City, NY-NJ-PA (17.7%)
- Los Angeles-Long Beach-Anaheim, CA (10.1%)
- Washington-Arlington-Alexandria, DC-VA-MD-WV (5.5%)
Furthermore, the primary states represented in the portfolio account for 44.1%, showcasing concentrations in California (23.7%), New York (10.8%), and Florida (9.7%).
Loan Groupings and Analysis
For a meticulous analysis, KBRA segmented the loan pool into two distinct sub-pools. Sub-pool 1, which consists of 550 loans (54.3% of the total balance), includes investor loans secured by residential rental properties with four or fewer units. Meanwhile, Sub-pool 2 consists of 282 loans (45.7%) secured by commercial real estate assets, predominantly featuring a variety of property types such as:
- Mixed-use properties (11.5%)
- Industrial properties (7.3%)
- Multifamily properties (6.4%)
- Retail properties (6.2%)
- Office properties (6.1%)
- Automotive service properties (4.0%)
- Commercial condominium properties (2.9%)
- Hospitality and manufactured housing communities (0.9% and 0.4% respectively)
Through this classification, KBRA seeks to understand the unique risks and performances associated with each property type.
Credit Assessments and Methodologies
The agency utilized its Residential Mortgage-Backed Securities (RMBS) and Commercial Mortgage-Backed Securities (CMBS) methodologies to gauge loss expectations across rating categories. This dual approach amplifies the accuracy and reliability of the ratings by taking into account the quality of collateral and typical transaction dynamics.
Expected Losses and Cash Flow Modeling
By merging the results from both credit models, KBRA calculated the expected losses at various rating levels, reflecting robust due diligence practices. These projected losses were vital in shaping the cash flow modeling, which helped assess the transaction’s credit enhancement levels within a modified pro-rata framework.
Accessing Relevant Documents and Further Insights
For interested parties wanting to delve deeper, relevant rating documentation and analyses can be accessed through the KBRA website. Understanding these documents can provide valuable insights into the rationale behind the assigned ratings, including methodologies and potential sensitivities associated with the credit metrics involved.
About Kroll Bond Rating Agency (KBRA)
Kroll Bond Rating Agency, LLC (KBRA) is committed to delivering comprehensive credit ratings and analyses. Recognized by the U.S. Securities and Exchange Commission and various international regulatory bodies, KBRA is a critical player in the credit rating industry, providing trustworthy evaluations that help guide investment decisions.
Frequently Asked Questions
What is VCC 2024-5?
VCC 2024-5 is a securitization product represented by a pool of mortgage-backed certificates evaluated by KBRA.
How does KBRA assign its ratings?
KBRA utilizes specialized methodologies to assess the quality of the underlying collateral and the potential risks associated with different loan categories.
What are the main characteristics of the loans in VCC 2024-5?
The loans in this securitization primarily consist of fixed-rate mortgages, with an average outstanding balance over $360,000 and favorable LTV and FICO scores.
Which states have the highest loan exposure?
California, New York, and Florida represent the states with the largest exposure in the VCC 2024-5 portfolio.
How does KBRA ensure the accuracy of its ratings?
KBRA combines rigorous credit modeling and detailed analyses of collateral quality, along with continuous monitoring of market trends and credit conditions.
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