MFA Financial, a publicly traded REIT, has approached the RMBS market with a securitization of loans posing a variety of risks, despite being held by borrowers with moderate credit profiles.
The MFA 2024-NQM3 Trust deal is split into seven rated tranches totaling $380.1 million. The largest $283 million tranche rated AAA carries credit enhancement of 25.6% and an interest rate of 5.644% that Fitch Ratings describes as subject to change in its December 11 pre-sale report. At the other end of the credit spectrum are a $8.4 million piece rated B-with credit enhancement of 4.55%, and $17.3 million unrated tranche with no credit enhancement—both carrying a Northwest Average Coupon (NWAC).
Lead underwriters on the deal are Barclays Capital, Atlas SP Securities, Goldman Sachs and Wells Fargo Securities.
The 651 nonprime loans aggregated by MFA were originated by firms including Citadel Servicing Corporation, Excelerate Capital and FundLoans Capital.
The borrowers in the pool have moderate credit profiles reflected by an average FICO of 729 and sustainable loan-to-value ratio of 74.4%. However, Fitch says, there are several negative ratings drivers. They include the pool's elevated home values, 39.5% of the loans supporting investor properties that are more likely to default, and 64.8% designated as nonqualified mortgages (non-QM)--not meeting the Consumer Financial Protection Bureau's (CFPB) requirements—or the QM rule does not apply to them.
"This pool consists of a variety of weaker borrowers and collateral types, including second liens, foreign nationals and nonstandard property types," Fitch says.
In addition, Fitch says 91.2% of loans in the pool were underwritten to less than full documentation, and 48.7% came from a bank statement program for verifying income, Fitch says, although they do adhere to the underwriting and documentation standards required by the CFPB's Ability to Repay Rule (ATR Rule).
Nevertheless, the rating agency adds, "Our treatment of alternative loan documentation increased AAA expected losses by approximately 1,000 bps, compared with a transaction of 100% fully documented loans."
Another negative is that 54 pool loans, or 4.7%, are for foreign national borrowers, and 62 loans, or 6.2%, are for borrowers qualified with individual taxpayer identification numbers (ITINs). In both cases, Fitch considers the properties as investments and so penalizes their documentation scores and liquid reserves.
Fitch also harbors concerns about the pool's concentrations. Ten loans account for 11.8% of the pool, and the 20 largest loans represent 20.2%. Geographically, 35.8% of the pool is concentrated in California, with nearly two thirds of those in Los Angeles.
MFA was founded in 1997 and, as of June 23, 2024, had acquired more than $8.9 billion of non-QM loans. Members of its management team each have more than 20 years of experience.
