The OBX 2021-J3 Trust is preparing to issue a series of mortgage-backed securities collateralized by high quality home loans made to well-qualified borrowers, in a deal that is expected to close on October 8.
With a principal balance of about $453.6 million, the collateral pool is comprised of about 465 first-lien, fixed-rate and prime residential mortgages, according to DBRS Morningstar, which expects to rate the issued notes.
Among the collateral loans’ credit virtues are low loan-to-value ratios, strong borrower credit, and full documentation on virtually all of the loans. OBX 2021’s capital structure employs a shifting interest, senior-subordinate cash flow structure that enhanced from pre-crisis methods.
None of OBX 2021’s underlying loans had been granted forbearance plans as a result of borrowers reporting financial hardships amid the COVID-19 pandemic.
Underlying borrowers a largely well qualified, and are categorized as Qualified Mortgage, Safe Harbor loans under the QM and Ability-to-Repay rules, according to DBRS. On average, borrowers have loan balances of about $975,000, with a weighted average (WA) coupon of 3%. In terms of credit qualifications, borrowers in the pool have a weighted average FICO score of 775. Further borrowers’ cumulative LTV stood at 64%, and they had a WA debt-to-income ratio of 30%.
While OBX 2021 is structured on a firm foundation, with strong collateral, the deal still has a number of credit challenges and mitigating factors, DBRS noted, starting with its representation and warranty (R&W) framework. MAXEX as aggregator and Onslow Bay Financial are listed R&W providers, but are unrated I that capacity, said DBRS.
MAXEX Clearing LLC, acquired about 6.3% of loans in the pool, while Onslow Bay Financial, LLC, acted as a home loan seller on the deal, according to DBRS.
Shellpoint Mortgage Servicing, the transaction’s servicer, is also another unrated entity that poses a potential challenge to the deal. DBRS acknowledges SMS is operationally sound, but is still concerned about its ability to withstand potential financial difficulties in the future. Wells Fargo is onboard as master servicer, offsetting some of that concern.
DBRS also noted that some of the entities on the deal are not financially strong enough, and lack the experience in prime mortgage securitizations. If they breach R&W obligations, they might not have the ability to fulfill repurchase obligations.
DBRS expects to assign ‘AAA’ ratings to a substantial majority of the notes that it will rate, from the $289.2 million class A-6 through the $47.6 million A-X-22. More subordinate classes are likely to be rated ‘AA’ through ‘B.’
