A real estate investment fund affiliated with investment firm Neuberger Berman is sponsoring its second securitization this year consisting primarily of nonprime, private-label mortgage originations.
Most of the loans in the $320.1 million pool for Homeward Opportunities Fund 1 Trust 2018-2 are recent originations acquired by Homeward Opportunities Fund 1 LP from two lenders. Most of the assets (71.6% of the pool) do not qualify for a safe haven under ability-to-repay and other qualified mortgage (QM) standards.
The transaction is backed by 692 loans with an average balance of $462,580. They are a mix of fixed-rate, adjustable-rate and interest-only loans secured by first liens on a mix of single-family, multifamily and condominium properties.
The loans were acquired by Neuberger, the investment manager on the transaction, from two lenders – Sprout Mortgage Corp. and 5th Street Capital.
Seven classes of term notes will be issued in the transaction, including a $213.5 million Class A-1 tranche with preliminary triple-A ratings from Kroll Bond Rating Agency and S&P Global Ratings.
The senior notes are supported by 33.3% credit enhancement, slightly above the 30% level for the previous $489.1 million Homeward Opportunities issuance in July that pooled nearly double (1,203) the number of mortgages.
While the new transaction features a lower percentage of alternative-documentation loans (48.3% of the pool balance, versus 63.3% in the Homeward 2018-1 deal), other credit metrics are weaker. The loans are high-balance ($462,580) with higher debt-to-income levels of 34.1% and a lower weighted average FICO of 717.
The new pool also has a higher amount of adjustable-rate mortgages (74.7% of the pool, most of which only have five-year initial fixed-rate periods) and lighter seasoning of just six months (compared to 11 months previously).
On a positive note, borrowers have substantial equity in their homes, with an average WA loan-to-value ratio of 68.8%.
While this is only Neuberger Berman's second nonprime mortgage securitization, the company has sponsored 19 reperforming and nonperforming transactions since 2014. It has acquired over 30,000 mortgages for its residential managed portfolio totaling more than $15 million since 2012.
The loans acquired for the Homeward 2018-2 portfolio are from lenders with limited track records in nonprime RMBS, Kroll noted. Sprout, a spinoff from Recovco Mortgage management, was established in 2014 to focus on nonprime lending – including loans underwritten with alternative documentation and for investor-owned property. Sprout operates in Texas, New York, California and Georgia, and only began lending “in scale” toward the latter part of 2016.
5th Street, based in San Diego, specializes in high-net-worth and well-qualified borrowers through wholesale and correspondent origination channels.
