In a languid mortgage market pummeled by high interest rates, Angel Oak has launched a $289 million residential mortgage-backed security (RMBS) backed by 627 non-qualified mortgage loans, the sponsor's thirteenth transaction this year.
Sponsored by Angel Oak Real Estate Investment Trust and Angel Oak Mortgage Operating Partnership, the deal is split into multiple tranches, including five rated tranches. The rated tranches comprise a $183.7 million piece rated AAA by Fitch Ratings; a $28.9 million portion also rated AAA ; $12.1 million rated AA; $23.7 million rated A; and $14.4 million rated BBB+. Tranches of $9.4 million and $16.6 million are unrated. Credit enhancement on the rated portions are respectively 36.4%, 26.4%, 22.2%, 14.0%, and 9.0%, and on the unrated portions 5.7% and 0%.
A Fitch December 9 presale report says that 55.9% of the loans are designated as nonqualified mortgage loans, and the remaining 44.1% of mortgage loans are exempted for QM status and not subject to the Ability to Repay (ATR) rule because they are for investor properties.
One negative ratings driver, according to Fitch, is the pool's home price values resting at 11.3% above a long-term sustainable level as of 2Q, somewhat less than the 11.6% premium at a national level.
"Housing affordability is the worst it has been in decades, driven by both high interest rates and elevated home prices," the Fitch report says.
Another negative, according to Fitch, is that 91.4% of the loans in the pool were underwritten to borrowers with less than full documentation, and 47.2% of those were underwritten to a 12-month or 24-month business or personal bank statement program, to verify income.
"To reflect the added risk, Fitch increases the probability of default by 1.5 times on bank statement loans," Fitch says.
Nevertheless, the mortgage borrowers have a relatively strong credit profile, with a 752 nonzero FICO and a 45.0% debt-to-income ratio, Fitch says, adding they have relatively moderate leverage, with an original combined loan-to-value of 69.9%. Furthermore, Fitch found, none of the borrowers had a credit event within the past seven years, none of the loans have a junior lien, and no second-lien mortgages are in the pool.
