Annaly Capital is preparing its first offering of residential mortgage bonds backed entirely by loans to investors, according to Kroll Bond Rating Agency. OBX 2019-INV1 is backed by 1,172 fixed-rate mortgages with an aggregate principal balance of $394 million.
Annaly had included some investor loans in its four prior securitizations, but they were always a relatively small portion of the collateral. Since the financial crisis, only one other sponsor, Invictus Capital Partners, has issued publicly rated mortgage bonds backed entirely by investor loans. Invictus completed two such deals last year.
Investor properties have typically exhibited a higher propensity for default relative to owner-occupied homes, all else equal. The loans in this pool were underwritten to agency guidelines with consideration to borrower credit attributes such as credit score, loan-to-value and debt-to-income. However, Kroll notes that collateral performance may largely depend on certain aspects of a property’s rental market such as vacancy rates as well as the borrower’s capacity and motivation to manage multiple properties generate sustainable cash flow and maximize recoveries.
KBRA notes that the 1,172 loans in OBX 2019-INV1 were originated to 1,128 unique borrowers, with 5.3% of the mortgages attributed to borrowers with multiple loans in the pool. This could potentially subject the pool to a certain level of borrower concentration risk where the performance of one loan can be affected by that of another, based on the measures taken by a common borrower.
Two large and established loan originators, Quicken Loans and JP Morgan Chase Bank, contributed 96% of the collateral.
The super senior, AAA rated class of notes to be issued by OBX 2019-INV1 benefits from 20% credit enhancement, which is five percentage points higher than the credit enhancement on the comparable tranche of the sponsor’s previous deal.
