A pool consisting primarily of non-conforming, mortgages (92.2%) will secure an approximately $305.9 million mortgage-backed securities (MBS) transaction, through the OBX 2022-J2 Trust. All of the home loans in the trust have been designated as safe-harbor, qualified mortgages, and none are interest only.
Onslow Bay Financial (OBX), as seller and sponsor, will again purchase the 340 home loans meant for the collateral pool from Bank of America, according to a pre-sale report from Moody’s Investors Service.
OBX 2022-J2 Trust will issue notes from a complex capital structure. Funds from the available payment amount will first be used to make interest payments to the super-senior and senior support bonds on a pro rata basis. After that, principal payments will be made to the super senior and senior support bonds pro rata, Moody’s said.
The rating agency expects to assign ratings of ‘Aaa’ and ‘Aa1’ to the notes, it said.
Among the senior bonds, the principal amount is paid concurrently. Classes A-6, A-8 and A-10 notes, and then class A-14, until each class’s principal amount has been reduced to zero. After the period when credit support is depleted, principal payments will be distributed to classes A-6, A-8, A-10 and A-14, on a pro rata basis, until the principal amount of each class of notes has been reduced to zero.
Among the deal’s credit strengths are borrowers with high credit scores. The primary borrower weighted average (WA) credit score is 769, while the original cumulative loan-to-value ratio is 67.9%. About 69.8% of borrowers have more than 24 months of liquid cash reserves.
Moody’s noted that the capital structure follows a shifting interest structure that allows subordinate bonds to receive principal payments under certain scenarios. Subordinate bonds pay down over time as the pool balance declines, so they are exposed to eroding credit enhancement over time, the rating agency said.
In one credit challenge, the pool contains 20 loans with large principal balances, accounting for about 11.0% of the initial pool balance. The high-balance loans expose the notes to loss risks at the tail of the transaction, when few loans remain. At that point in the transaction, a large loan could significantly reduce enhancement and risk losses to the bonds.
In another potential credit weakness, the pool has a high geographic concentration, as 28.4% of the aggregate pool by loan balance is located in California.
