EFMT Sponsor is preparing a $372.3 million mortgage-backed securities transaction. The 4th deal of its kind from the trust this year, the transaction will issue notes secured by a pool of residential mortgages on mostly owner-occupied homes.
Some 909 mortgages, all of which are first-lien that have an average balance of $409,529, will secure the notes from the transaction, called EFMT 2022-4, according to Kroll Bond Rating Agency. The deal is non-prime. Specifically non-qualified mortgages comprise 50.5% of the pool, and the remaining loans are considered exempt from the Ability to Repay/Qualified Mortgage rule, because they were originated for business purposes—essentially investment properties.
Ellington Management Group purchased a majority of the underlying loans in the EFMT 2022-4 mortgages, about 60.2%, from LendSure Mortgage Corp., the affiliated originator.
Credit Suisse Securities, Barclays Capital, Nomura Securities International and BTIG are all initial note purchasers on the transaction, which is slated to close on September 23. EFMT will issue the notes through a senior-subordinate and hybrid pro-rata/sequential-pay structure.
The trust will distribute interest sequentially, after which principal will be paid to any unpaid interest to the senior classes. After that, principal can be available to pay principal to classes A-1 through A-3 on a pro-rata basis; and finally pay interest to classes on the M-1 through B-3 classes.
EFMT's notes will benefit from a number of performance triggers, including delinquency or cumulative loss triggers. The deal will also use excess cash flow to cover current period and cumulative realized losses. The notes will also benefit from excess spread.
Both KBRA and Fitch Ratings intend to assign ratings to the notes, and they are expected to be similar. Ratings from both agencies will range from 'AAA' on the A-1 notes to 'B+' from KBRA and 'B' from Fitch on the B-2 notes.
On a weighted average (WA) basis, the mortgages have a credit score of 737, a KBRA credit score of 729, and an original loan-to-value ratio of 71.1%.
Borrowers have a net zero WA annual income of $413,997, a net zero median annual income of $186,049, and liquid reserves of $427,211. As for the mortgaged properties, single-family homes and planned unit developments comprise 75.6% of the pool, while condominiums account for 14.8% and multifamily properties and those classified as "other."
Geographically, the pool is diversified. California is the state with the largest percentage of loans, 30.3%. Florida, Texas, Utah and Arizona account for $17.8%, 9.5%, 3.6% and 3.4%, respectively.
