The latest mortgage securitization of non-prime loans from MFA Financial sells $386.7 million in asset-backed bonds to investors, and will repay investors through a senior-subordinate structure.
MFA 2023-NQM3 will distribute principal repayments on a pro rata basis among the A-1, A-2 and A-3 classes and shuts out the subordinate classes of notes from any payments until the balances among the senior notes is reduced to zero. The same payment priority holds if a cumulative loss trigger event or delinquency trigger event occurs in a given period, according to ratings analysts at Fitch Ratings.
Barclays Capital, Atlas SP Securities and Wells Fargo Securities all are lead underwriters on the deal, according to Fitch.
The transaction has a step-up coupon for the senior classes, where after four years classes A-1, A-2 and A-3 pay the lesser of a 100 basis-point increase to the fixed coupon, or the net weighted average (WA) coupon rate, Fitch said.
The three senior tranches are expected to repay investors with interest rates of 6.84%, 7.24%, and 7.44% on the A-1, A-2 and A-3 notes. The notes have a slated final maturity date of July 2068, the rating agency said.
MFA's non-prime collateral natural rests with the fact that borrowers have a moderate credit profile. On a WA basis, the pool's Fitch model FICO score is 710. The loans also have leverage with a 73.3% sustainable loan-to-value ratio (LTV). A slight majority of the loans, 54.6%, fund properties where the borrower maintains primary residence. Similarly, a slight majority of the loans, 57.3%, are nonqualified mortgages, while the QM rule does not apply to the remainder, the rating agency said.
Driven by the non-QM nature of the collateral, Fitch has set its expected loss in the 'AAA' stress at 23.50%, it said.
Fitch assigns ratings of 'AAA', 'AA' and 'A' to the A-1, A-2 and A-3 classes; 'BBB' to the M1 class; and 'BB' and 'B' to the B1 and B2 classes of notes, respectively.
