Non-qualified residential mortgages continue to be a prolific asset class for 2024, and account for most of the fixed-rate loans that will secure $551 million in notes from the OBX 2024-NQM7 Trust. The deal also features step-up rates on the class A notes.
Onslow Bay Financial is sponsoring the deal, while United Wholesale Mortgage, among other originators, contributed loans to the OBX pool. United Wholesale appears to account for the largest portion, at 25.86%, according to ratings analysts at S&P Global Ratings.
Asset Securitization Report's deal database notes that the OBX 20204-NQM7 is slated to close on May 14, and that Barclays, BNP Paribas and Cantor Fitzgerald are managers. Under the capital structure the senior notes will be repaid on a pro rata basis. Otherwise, the notes in the structure will benefit from excess spread and a senior-subordinate structure, according to the database.
The class A notes have a step-up interest rate feature, which, S&P analysts said should motivate the Onslow Bay Financial to "clean up" the transaction. For instance, out of the 1,116 mortgages in the pool, originators wrote five of the contracts under temporary buydown plans. Those contracts, wherein the borrower will make monthly payments that are less than the scheduled payment in the early years of the loan, account for just 0.73% of the pool, the rating agency said. After running its assessments on the loans, S&P says that it applied a 1.10x adjustment to the foreclosure frequency of two loans and a 1.05x adjustment to the foreclosure frequency of three of the loans.
Beginning on May 2028, the A1, A2 and A3 notes will receive a step-up rate amounting to the sum of the applicable fixed coupon at closing and 1.00%. The amounts are subject to the pool's net weighted average coupon (WA), the rating agency said. Additionally, the deal has an optional redemption that could occur in April 2027 under certain conditions.
Most underlying borrowers in the pool have accumulated a significant amount of home equity, with the weighted average (WA) cumulative loan-to-value (CLTV) of 70.60%.
Just 4.30% of the mortgage pool are interest-only loans.
S&P assigns AAA, AA and A ratings to the A1, A2 and A3 tranches, respectively, and BBB- to the M1 notes, it said. KBRA assigns AAA, AA+ and A+ to the A1, A2 and A3 notes, respectively; BBB+ to the M1 notes; BBB- to the B1A notes; BB- to the B1B notes and B- to the B2 notes.
