The loans underlying the $465 million securitization that OBX 2019-EXP3 Trust is launching will provide a test of the market’s willingness to accept concentration risk in a high-quality pool of mortgages.
In all 735 fixed-rate and adjustable-rate residential mortgages are included in the pool, which were acquired by Annaly Capital Management from various originators and aggregators.
The deal has a number of unusual features. One of the most notable is its relatively high geographic concentration. About 48.4 percent of the properties securing the mortgages are located in California. Further, the mortgaged properties are highly concentrated in three MSAs representing 58 percent of the portfolio – Los Angeles, New York and San Francisco. Fitch Ratings said the California-specific percentage is higher than transactions it has rated recently and the agency applied a concentration penalty of 1.14x to the deal.
Although the loans were collected from a wide array of sources, quality is a common thread. The pool consists mainly of 30-year, fully amortized loans to borrowers with strong credit profiles, relatively low leverage, and large liquid reserves. The pool has a weighted average FICO score of 757 and high average balance of $633,322.
Among its other strong positive ratings attributes, according to Fitch, is the deal’s well-controlled operational risk. Select Portfolio Servicing, which has a high ‘RPS1,’ is servicing 78.6 percent of the loans.
The deal’s structure is straightforward, with its traditional senior-subordinate, shifting-interest Y-structure.
Investor properties make up a “meaningful” representation of the pool at 32.3 percent. The pool also included a 60.6 percent concentration of non-qualified mortgages and 62.8 percentage of non-full documentation loans,
Fitch noted that the deal’s representation, warranty, and enforcement (RW&E) mechanism was, in the agency’s opinion, consistent with a Tier 2 framework. Further, the company providing RW&E services to the deal is Onslow Bay Financial, which does not have a rating from Fitch. Fitch Ratings gave the deal a loss penalty of 73 basis points for its Tier 2 framework, plus the non-rated counterparty.
The first fourteen of the note classes, from 1-A-1 received a rating of ‘AAA’. Classes B-1 and B1-IO; Classes B2-1 and B2-IO received ‘A’ ratings. The B-3, B-4 and B-5 classes received ‘BBB’, ‘BB’, and ‘B’ ratings, respectively.
