Onslow Bay Financial is preparing to sponsor a $413.6 million residential mortgage-backed securitization, secured mostly by revenues from fixed-rate, non-qualified home loans.
Slated to close at the end of the month, OBX 2024-NQM1 Trust taps a collateral pool of 894 residential mortgages, with fixed-rate home loans accounting for an overwhelming majority (86.7%), and adjustable-rate mortgages making up 13.3% of the pool, according to ratings analysts at Kroll Bond Rating Agency. The rating agency noted that most of the loans are either classified as non-qualified or exempt from Ability-to-Repay requirements, because they were not originated for consumer loan purposes.
The senior and mezzanine notes are benchmarked to the three-month Interpolated yield curve, with spreads ranging from 150-155 basis points over the benchmark on the most senior notes to 290-295 bps on the mezzanine notes, according to Asset Securitization Report's deal database.
Most of the home loans in the pool were originated using alternative or non-traditional documentation to verify income, KBRA said. Many characteristics about this pool resemble previous deals, and it is the third transaction since 2023 when New York accounts for the second-biggest concentration of loans, behind California.
Onslow Bay also serves as the seller, P&I advancing party and depositor on the deal, according to both KBRA and Fitch Ratings, which also assigned ratings to the notes.
BofA Securities, which was the top ABS manager for 2023, is the lead underwriter on the deal, according to Fitch Ratings. The rating agency notes that the sponsor sourced the mortgage collateral from a range of originators, but none of them accounts for more than 10% of the pool balance, Fitch said. Among the deal's strengths is its low operational risk, partially stemming from the diversification among the originators.
OBX operates with a senior-subordinate structure, and will repay the notes on a pro-rata and sequential basis, according to KBRA. The A1, A2 and A3 notes benefit from credit enhancement levels of 26.80%, 20.55% and 13.15%, respectively. The notes also benefit from excess spread of about 1.5%, according to KBRA.
KBRA notes that the collateral in the pool has moderate leverage, with a weighted average (WA) loan-to-value ratio of 69.8%, providing some protection against hope price declines.
KBRA intends to assign ratings of AAA to the a1 notes; AA+ to the A2 notes and A+ to the A3 notes; BBB+ to the M1 notes; BB- to the B1 notes; and B- to the B2 notes. The rest of the deal includes four unrated (by KBRA) classes that include subordinate, excess servicing, excess cashflow and REMIC residual tranches.
Fitch says that it assigns AAA to the A1 notes; AA to the A2 notes and A to the A3 notes and BBB- to the M1 notes.
All of the notes are slated to finally mature in November 2063.
