Angel Oak Capital’s second securitization of non-prime residential mortgages brought its funding costs down significantly, helped by the addition of some new investors.

The senior tranche of securities issued in the $132.65 million AOMT 2016-1a securitization has a coupon of 3.5%; that’s a full percentage point lower than the equivalent tranche of Angel Oak’s original deal, completed in December 2015. While conditions in the credit markets have improved markedly in the interim, the lower coupon also reflects the fact that there was a larger pool of investors, according to Sreeni Prabhu, Angel Oak’s chief executive and chief investment officer.

“All of the existing investors looked at the deal, and [most] did participate,” he said in a telephone interview. “Also, more than 10 new investors looked at it and some did participate.”

Prabhu said the collateral for the two deals was similar. Both are backed by backed by mortgages that are subject to Ability-to-Repay Rules, but do not qualify for a legal safe harbor. Most were originated through the firm’s two affiliate residential mortgage lenders, Angel Oak Mortgage Solutions, a wholesale lender, and Angel Oak Home Loans, a retail lender. (The inaugural AOMT 2016-1 also included collateral from another affiliated lender, Angel Oak Prime Bridge.)

The second deal was backed by a larger number of hybrid loans, with an interest rate that is fixed for an initial term but then resets periodically, whereas the first deal was backed primarily by loans fixed for their entire terms. These hybrid loans generally have longer fixed rate than those seen before the financial crisis, however; most reset after an initial period of seven years.

Angel Oak Capital (through one of its accounts) has retained 5% of the offered securities, to satisfy risk retention requirements of the Dodd-Frank Act, and 100% of the remaining classes of subordinate securities – aligning interests of all parties.

“Angel Oak’s mortgage lenders have seen a steady increase in non-QM mortgage origination volume since the inception of these programs,” Prabhu said in a press release. “Our lending platforms are on pace to originate approximately 3,100 loans totaling approximately $800 million by year end. Angel Oak Capital will continue to selectively purchase the loans we feel fit best within securitization parameters and meet investor requirements.”

AOMT 2016-1 issued approximately $119.38 million of senior classes of certificates and approximately $13.26 million of subordinate classes of certificates for a total deal size of approximately $132.65 million.

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