No more Easy A for Angel Oak's nonprime RMBS

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Angel Oak had to increase the level of investor protections to earn a triple-A on its latest nonprime mortgage securitization.

DBRS expects to assign its top rating to the senior tranche of notes to be issued in the $210 million transaction, Angel Oak Mortgage Trust, 2017-3. This time, however, the senior tranche benefits from 46.25% credit enhancement, up significantly from 37.75% for the sponsor’s previous transaction, completed in July (but in line with CE on the first deal of the year, completed in April).

All three deals are backed by a portfolio of fixed-rate and adjustable-rate mortgages, primarily to borrowers with “near-prime” credit, meaning they are unable to obtain financing through conventional channels because their credit scores aren’t quite high enough, they declared bankruptcy too recently, or because they are self-employed and need to verify their income using bank statements.

Most of the credit characteristics listed in DBRS’ presale report are similar to those of Angel Oak’s two previous rated deals: The pool of collateral has a weighted average FICO of 699, a weighted average cumulative loan-to-value ratio of 77.7%, and weighted average seasoning of three months.

One notable difference is that the weighted average coupon of the loans has risen, to 7.14% from 6.867%. Until recently, many nonprime lenders were offering loans with progressively lower coupons, in part because they were able to pass along the cheaper funding they obtained via securitization to their customers. As prevailing interest rates rise, however, the cost of all kinds of funding is likely rising as well.

Angel Oak began originating non-agency loans in the fourth quarter of 2013. Since the first transaction issued in December 2015, voluntary prepayment rates have been relatively high, as these borrowers tend to credit cure and refinance into lower-cost mortgages. Also, the loans in the AOMT 2017-3 portfolio are 100% current. Although 3.8% of the pool has experienced prior delinquencies, these loans have all cured, says DBRS.

Like all Angel Oak securitizations, this one has an unusually large exposure to Florida, which accounts for 27.8% of the pool. There are just 10 loans (1.9% of the pool) located in ZIP codes identified by FEMA as affected by Hurricane; a larger number, 232 ( 26.5%) are in areas affected by Hurricane Irma.

In addition, approximately 15 (5%) of properties are located in FEMA-designated disaster zones in California related to wildfires. Property inspections were ordered for these FEMA loans, which showed that none of the loans included in the pool had material damage.

Select Portfolio Servicing is the servicer; Clayton Services is the rep and warranty reviewer.

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