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Rating Action:

Moody's has assigned provisional ratings to the Series 2011-1 notes to be issued by Velocity Commercial Capital, LLC

Global Credit Research - 14 Apr 2011

New York, April 14, 2011 -- Moody's has assigned provisional ratings to the Series 2011-1 notes to be issued by Velocity Commercial Capital Loan Trust 2011-1. The transaction is a securitization of small balance commercial loans sponsored by Velocity Commercial Capital, LLC. The sponsor originates and purchases mortgage loans backed by commercial real estate. The loans are backed by a mix of commercial, mixed use and multi-family properties, both owner occupied and investor owned. The complete rating action is as follows:

Issuer: Velocity Commercial Capital Loan Trust 2011-1

Series 2011-1 Notes, Assigned (P) A2 (sf)

RATINGS RATIONALE

The ratings are based primarily on an analysis of the credit quality of the collateral, the collateral's historical performance, the ability of Situs Asset Management LLC as servicer, the special servicing ability of Velocity Commercial Capital, LCC (VCC), and the level of credit enhancement available under the proposed capital structure. Credit enhancement includes overcollateralization which is initially 18.5% and targeted to grow to 20.5%, a non-declining, pre-funded reserve account funded at 0.5% and excess spread for total enhancement of in excess of 21%. The deal structure also includes a cumulative default trigger that trips according to a schedule and redirects monthly excess cash flow to pay down note principal when the trigger fails. Regardless of the trigger, principal collections on the loans are always used to pay principal on the notes until the notes are fully repaid.

The loans in the pool are a combination of fixed rate (43.1%) and hybrid or floating rate (56.9%). All adjustable rate loans are indexed to 3 or 6 month Libor. Given that the notes are floating rate indexed to Libor; this presents a potential mismatch in interest rates. Collateral was directly originated by the sponsor (46.4%), originated by and purchased from Lehman Brothers Small Business Finance (48.4%) or originated by and purchased from LaSalle Bank (5.2%). The loans are significantly seasoned with original WAM of 349 months and current WAM of 314 months. Approximately 9.9% of the loans in the pool have either been modified or experienced repeated delinquencies in the past. All loans in the pool are current as of the cut-off date.

Moody's median cumulative gross loss expectation for the collateral pool securitized in VCC 2011-1 is 9.00%. The expected gross loss is based primarily on an analysis of the collateral's historical performance -- including deal performance for C-BASS 2006-SC1 (a securitization of VCC originated small balance commercial mortgage loans) and managed portfolio performance -- adjusted to reflect differences between the economic conditions underlying the historical performance and our expectation of future economic conditions. Moody's Aaa volatility proxy for the deal is 45.00%.

Moody's V Score. The V Score for this transaction is Medium. The V Score indicates "Medium" uncertainty about critical assumptions. Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions that underlie the ratings within the categories of data quality, historical performance and the level of disclosure for each of the asset class sector and the issuer; transaction complexity, analytical modeling and the market value risk; transaction governance, backup servicing, alignment of interests and legal, regulatory and other risks. V Scores apply to the entire transaction (rather than individual tranches). While the overall score is Medium, significant deviations from the sector within the individual categories include the following: quality of historical data for the sponsor which is medium-high versus medium, due to this being the first sponsored securitization of the sponsor and there being limited managed portfolio data; disclosure of securitization performance which is medium-low versus medium due to monthly data disclosure being more detailed than those seen generally in the sector; experience and oversight of transaction parties is medium versus medium-low due to this being the first managed securitization of the sponsor; and alignment of interests which is medium-low due to the substantial amount of equity in the transaction which is to be held by the sponsor.

Moody's Parameter Sensitivities: If the expected cumulative gross losses used in determining the initial rating were changed to 12%, 15% or 185%, the initial model-indicated rating for the notes might change from A2 to Baa1, Baa3, and Ba2 respectively. Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time, rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

Additional research including a pre-sale report for this transaction is available at www.moodys.com. The special reports, "Updated Report on V Scores and Parameter Sensitivities for Structured Finance Securities" and "V Scores and Parameter Sensitivities in the U.S. Equipment Lease and Loan ABS Sector" are also available on moodys.com.

Moody's Investors Service did not receive or take into account a third party due diligence report on the underlying assets or financial instrument in this transaction.

PRINCIPAL METHODOLOGY

The credit analysis used for this pool breaks down the pool into performing and reperforming components. Loans which have been modified or which have experienced repeated delinquencies in their pay histories are considered to be reperforming whereas the remaining loans are considered to be performing. VCC managed portfolio was analyzed in determining expected gross defaults and the Aaa loss volatility proxy. Industry comparable experience was used to arrive at expected loan modification recidivism and severity of losses. Severity is assumed to be 30% at the expected case and is assumed to be 60% in the Aaa scenario.

For the performing component of the pool, we use a two phase approach similar to our approach used in the surveillance of small balance commercial transactions. A "stress" phase is assumed where defaults mirror those of the sponsor's managed portfolio for the previous two years. Sixteen percent of the portfolio balance is assumed to default during this initial stress period in the expected case. In the Aaa scenario, it is assumed that 48% of loans default during this "stress" phase. The post stress period expectations are based on industry comparable experience in more historically benign periods. Expected and Aaa cumulative gross defaults (remaining deal life) are 14% and 38% respectively during this second phase.

Based on industry experience with modifications to small balance commercial loans, the reperforming component of the pool is in our expected case assumed to have about 25% additional defaults beyond those experienced on the performing loans. Given that these reperforming loans will still be subject to ordinary economic pressures, those loans which do not default due to their riskier reperforming status are still assumed to have the same default rates as the performing portion of the pool.

Because the structure is exposed to the interest rate mismatch between notes and collateral, credit for excess spread was assessed assuming a variety of interest rate and prepayment scenarios. Time to liquidation has been very long in the small balance commercial space. In order to prevent excess spread leaking from the deal if performance deteriorates worse than expectations, the deal structure includes a default trigger that trips according to a schedule and redirects monthly excess cash flow to pay down note principal when the trigger fails.

Moody's considered a variety of factors in assessing variability around the expected cumulative gross loss. These included: historical performance data (including volatility of performance and performance during distressed economic periods), pool characteristics, and servicer capabilities and financial strength. This is a relatively granular pool where no single underlying obligor is expected to affect the overall pool performance significantly so a lognormal distribution of loss probabilities is assumed. In this context, and given the expected loss of 9% and the Aaa volatility proxy of 45%, the capital structure's ability to insulate notes from losses on the defaulted loans was assessed to be consistent with the rating A2.

Other methodologies and factors that may have been considered in the process of rating this issue can be found at www.moodys.com.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Michael Labuskes
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's has assigned provisional ratings to the Series 2011-1 notes to be issued by Velocity Commercial Capital, LLC
No Related Data.
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