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Angel Oak reverts to in-house origination for next nonprime RMBS

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Angel Oak’s next private-label mortgage securitization is backed entirely by loans originated in-house by one of two affiliates, according to rating agency presale reports. Unlike the previous transaction, completed in June, none of the collateral for the $395.77 million Angel Oak Mortgage Trust (AOMT) 2018-3 was originated by a third party.

Similar to the 2018-2 transaction, however, the collateral includes a large portion of loans underwritten using bank statements to verify borrower income: 49%. That is unchanged from the prior deal, but up from 46.1% for Angel Oak’s first transaction of the year. It is also the highest level for any Angel Oak transaction rated by Fitch Ratings to date.

However, many of the bank statement loans in the latest deal were originated to borrowers through two programs, Angel Oak Platinum (10.3%) and Prime Jumbo Mortgage Loan Program (11%). Borrowers in these programs typically have higher FICOs and higher reserves, which Fitch believes benefits the pool.

Another 31.5% of the bank statement loans in this pool were also originated through the Angel Oak Platinum Bank Statement program, which has stronger collateral attributes than typical Angel Oak bank statement programs, on average.

Fitch also cited as a concern the high concentration of loans (8.2%) made on investment properties, which are underwritten to a property’s cash flow.

All of the loans will be serviced by Select Portfolio Servicing, a unit of Credit Suisse.

DBRS’s presale report does not point to the high concentration of bank statement loans as a concern, however.

The rating agency calculates the weighted-average original combined loan-to-value ratio of the collateral pool to be 78.6%, which suggests borrowers have considerable equity in their homes. While this is actually slightly higher than a typical transaction backed by prime jumbo mortgages, the distribution is much more uneven and skewed toward the higher-LTV buckets, per DBRS.

And the weighted average FICO score of 709 indicates weaker borrower credit profiles as compared with prime jumbo securitizations. Approximately 55.1% of the loans have FICOs lower than 720, and 1.1% have FICOs of 800 or higher. (Approximately 0.8% of the pool comprises foreign national borrowers; for these loans, DBRS assumed the WA score of the remaining pool.)

The pool contains 0.4% second liens with original terms to maturity of 20 years, a maximum CLTV of 95.0%, a WA debt-to-income (DTI) of 33.9% and a WA FICO of 726.

The pool is on average two months seasoned, with a maximum loan age of 38 months.

The pool comprises 65.6% hybrid ARMs with an initial fixed period of five to 10 years, allowing borrowers sufficient time to credit cure before rates reset. The remaining 34.4% of the pool comprises fixed-rate mortgages, which have the lowest default risk because of the stability of monthly payments.

As is typical of nonprime mortgage securitizations, 26.9% of the borrowers had prior credit events: 1.1% fell at least 30 days behind on a single payment and 0.2% fell 60 days behind on a payment. However, all have “self-cured” and are now making timely payments.

Both Fitch and DBRS expect to assign triple-A ratings to the senior tranche of notes to be issued in the transaction, which benefits from 34.8% credit support.

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RMBS Subprime lending