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Oregon REIT Great Ajax preps its first rated RPL RMBS

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Great Ajax Corp., a real estate investment trust based in Beaverton, Ore., is sponsoring its first publicly rated reperforming mortgage securitization.

Founded in 2014 by Larry Mendelsohn, a former executive of Wilshire Financial Services, Great Ajax has already completed 16 unrated offerings of bonds backed by legacy loans that were once delinquent.

The new deal, Ajax Mortgage Loan Trust 2017-B, is backed by 786 performing and reperforming mortgages with a combined principal balance of $165.9 million, according to rating agency DBRS. The loans have been seasoned 133 months, on average. Over 92% are now making timely payments.

The pool contains 87.4% modified loans; for the vast majority (99.1%), these modifications occurred more than two years ago. Additionally, 268 mortgages, or 39.8% of the pool, have non-interest-bearing deferred amounts, which equates to 9.8% of the total principal balance.

Great Ajax acquired the loans from various sellers. They are a mix of fixed-rate (57.8%), fixed step-rate (34%) and hybrid adjustable-rate mortgages (8.2%). Nearly a quarter (24.6%) of the loans are secured by properties that had “piggy-back” second liens when the loans were originated.

Over 35% of the loans are concentrated in California and 13.7% in Florida; DBRS considers the pool to be moderately geographically concentrated. The average balance is $211,005 with a weighted average coupon of 4.89%. The pool’s aggregate loan-to-value ratio is 68.4%.

All of the loans are serviced by Gregory Funding, an affiliate of Great Ajax.

DBRS has provisional assigned an AA rating to the senior Class A notes to be issued in the transaction; this tranche benefits from 30.15% credit enhancement.

While DBRS did not rate Great Ajax’ previous mortgage bond offerings, it has reviewed their historical performance. The presale report stated that these earlier deals were generally backed by collateral with “worse” attributes “with regards to delinquencies” at the time the mortgage bonds were issued. “The prior Ajax transactions currently exhibit high levels of delinquencies and losses, which are expected given the nature of these severely distressed assets,” the report stated.

DBRS’ presale report does not disclose that Mendelsohn, Great Ajax’s chairman and chief executive, was previously president and co-founder of Wilshire Financial Services, another REIT that purchased underperforming real estate mortgages before filing for bankruptcy. Wilshire went through a restructuring in 1999 that resulted in Mendelsohn’s termination by a new sitting board of directors.

Mendelsohn later pleaded guilty to a criminal count of filing a false tax return, according to Great Ajax’s registration statement for its initial public offering. The company and certain stockholders sold 5,385,000 shares of common stock, raising roughly $67 million in the IPO.

Great Ajax is controlled by Aspen Capital, a 24-year-old Portland private merchant bank for which Mendelsohn also serves as a senior partner, according to the Aspen Capital website. It is externally managed by Thetis Asset Management, an affiliated entity also managed by Mendelsohn, according to regulatory filings.

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