A portfolio of fixed- and adjustable-rate prime, expanded prime and nonprime first-lien residential mortgages will secure a $459.5 million, issuance of mortgage pass-through certificates, issued through GCAT 2022-NQM5 Trust.
Eight hundred, forty-nine mortgages secure the collateral pool, as of the deal's October 1 cutoff date, according to a pre-sale report from Morningstar | DBRS. The range of mortgage quality stems from the various mortgage lending programs in the pool as well as different originators contributing mortgage loans to it.
GCAT 2022-NQM5 will issue the notes through a senior-subordinate capital structure, one of its forms of credit enhancement.
Arc Home and Quontic Bank contributed 53.1% and 44.5% of loans to the pool, while other originators each contributed less than 15.0% of the loans to the pool, according to DBRS. Programs include bank statement loans, which rely on bank statements to qualify self-employed borrowers' incomes; full documentation loans, based on sources of borrowers' incomes and made to borrowers that satisfy ability-to-repay rules; and debt service coverage ratio loans, extended to borrowers applying for financing on investment properties, known as business-purpose loans.
Except for business-purpose investor loans, originators extended the loans to satisfy qualified mortgage and ability-to-repay rules. They were, however, still made to borrowers who generally do not qualify for agency, government, or private-label, non-agency prime jumbo products, DBRS noted. Some 17.00% of the loans are designated as non-QM, 23.8% are considered safe harbor, and 3.6% as rebuttable presumption.
DBRS noted that Quontic Bank, which originated a significant percentage of the loans, 44.5%, is a designated Community Development Financial Institution, which are exempt from QM/ATR rules, DBRS said. Although CDFI institutions do not have to lend under ATR rules, the loans were made to mostly creditworthy borrowers. On a weighted average (WA) basis, the CDFI borrowers had a debt-to-income ratio of 31.8% and a credit score of 738, according to the rating agency.
Overall, borrowers in the pool are of good credit quality, as DBRS noted the underlying mortgages have a WA FICO score of 742. Also, by loan balance, 73.6% of borrowers have FICO scores of at least 720.
While the credit quality is mixed, with prime and non-prime borrowers, DBRS noted that as loans move down the credit spectrum in terms of documentation and occupancy, other compensating factors come into play, such as lower LTVs, higher income and significant reserves.
On average, the loans have a balance of $541,296 and a coupon of 6.04%. Purchases, 63.0%, account for most of the loan purposes, followed by cash-out refinancings, 26.9%. Primary residences account for most of the occupancy types, 72.4%, followed by investor-owned properties, 22.5%.
