Annaly Capital's next prime RMBS expands the credit box
Annaly Capital Management is returning to newly originated loans for its next offering of residential mortgage bonds.
Unlike a deal completed in March, which was backed by in part by collateral from two transactions issued in 2015 that had recently been called, the $383 million OBX 2018-EXP1 is backed by loans seasoned just 17 months, on average.
However, the credit characteristics of the loans are slightly weaker than that of many recently issued prime RMBS, according to Fitch Ratings. “Some collateral attributes such as non-full documentation and a high percentage of non-QM and HPQM loans fall slightly outside the credit box seen in other recent prime transactions,” the presale report states.
The 577 loans in the pool of collateral have a weighted average original FICO score of 751, high average balance of $664,560 and a low loan-to-value ratio of 68.4%, which Fitch describes as “sustainable.”
However, the pool also contains a meaningful amount of investor properties (26%), non-qualified mortgages or higher-priced qualified mortgages (52%), and loans underwritten without fully documenting borrower income (37%). Fitch’s loss expectations reflect the higher default risk associated with these attributes as well as loss severity adjustments for potential ability-to-repay challenges.
Approximately 50% of the 577 mortgages in the collateral pool are adjustable rate; the majority of them have an initial fixed rate but reset after five years. Additionally, approximately 5.5% of the loans have remaining terms during which they pay only interest and no principal. Both features create the risk of payment shock when rates reset and borrowers start paying interest.
Approximately 64% of the pool is located in California, which is higher than other recent Fitch-rated transactions.
Annaly acquired the mortgages from various originators, including Quicken (12.8% of the pool), Banc of California (11.2%) and New Penn Financial (6.8%). The remaining originators each make up less than 5% of the total pool.
SLS is servicing 83% of the pool, Quicken Loans is servicing 12.8% and SPS 4.3%. Wells Fargo will act as master servicer.
Fitch expects to assign an AAA to the senior tranches of notes to be issued in the transaction, which benefit from 15% credit support.