A&D Mortgage is preparing to sell $371.5 million in mortgage-backed securities to investors, the third deal this year from the non-qualified mortgage-financing platform, A&D Mortgage Trust, and the fourth with A&D Mortgage as sponsor.
Primarily newly originated and fixed-rate mortgage loans, about 898 in all, will provide collateral for the deal, called A&D Mortgage Trust 2023-NQM3, or ADMT 2023-NQM3, according to ratings analysts from Fitch Ratings. A&D Mortgage originated the vast majority of the mortgage loans, 97.0%, while correspondent lenders originated the remaining 3.0%.
By another measure, a majority of the loans, 63.6%, are designated as non-qualified mortgages (non-QM) or (NQMs), some 0.4% are designated as safe harbor qualified mortgages and 35.9% are not subject to the Ability to Repay Rule from the Consumer Finance Protection Bureau's (CFPB).
The collateral pool is comprised of a mix of mortgage loans, from 30-year, fixed-rate, fully amortizing loans (94.6%) to 40-year, fixed-rate loans with an initial interest-only term (0.03%), Fitch said. The pool also has about four months of seasoning in aggregate. Ratings analysts also determined that borrowers who maintain a primary residence took out a majority of the loans, 61.7%. Some 38.3% of borrowers, meanwhile, comprises loans for an investor property or second home.
In taking a closer look at borrowers, self-employed, non-debt service coverage ratio (DSCR) borrowers make up 71.1% of the pool, another 1.0% are asset depletion loans and 21.2% are investor cash flow DSCR loans, according to Fitch.
Fitch did express some concerns about the geographic concentration of the loans. About 38.1% of the pool is concentrated in Florida, while the largest concentration by MSA is the Miami-Fort Lauderdale-Miami Beach area, with 23.5% of the pool. Northern New Jersey and the Los Angeles area follow with the second and third highest MSA concentrations, with 17.9% and 11.1%, respectively.
Another area of concern is that most of the pool, some 93.8%, were underwritten to less than full documentation, while 32.5% of the loans relied on 12- or 24-month bank statements to verify income, Fitch said.
