SG Residential Mortgage Trust, 2022-2, is coming to market to raise about $350 million in mortgage-backed securities. A pool of 670 mortgages, most of which were underwritten without full documentation, will secure the notes issued from the trust.
Some 51.6% of the loans in the pool are considered non-qualified (Non-QM), while 0.7% are categorized as safe harbor, according to Kroll Bond Rating Agency. Originators made the loans using 12-month bank statements (43.2%), debt service coverage ratios (DSCRs), (33.7%), full documentation (14.1%) and investor no ratio (4.0%).
Slated to close on August 5, SG Residential, 2022-2 will repay the notes from a hybrid structure. The most senior notes will repay investors on a pro-rata basis, while the mezzanine class and the B-1 and B-2 classes will issue the notes on a sequential basis, according to KBRA. The deal benefits from performance-based triggers, such as cumulative loss and delinquency.
Starting with the class A-1 certificates, the trust will allocate principal sequentially if any performance trigger is not satisfied. In the event of any current period and cumulative realized losses, the trust will use excess cash flow to address the issue. SG Residential, 2022-2, will also protect the notes with a 180-day stop-advance feature, which will prohibit the deal from advancing principal and interest on loans that are more than 180 days delinquent.
Credit Suisse Securities, Morgan Stanley & Co., and Nomura Securities International are initial note purchasers on the deal, according to KBRA.
In one potential credit challenge, the deal has a significant concentration of loans on properties in California, leaving the timely repayment of notes vulnerable to regional economic stresses or natural disasters.
A little more than forty percent of the loans, by pool balance, are on California properties. After that, Florida accounts for 27.4% of the pool balance, the Texas, with 5.3%, Arizona with 3.7% and New York, with 2.9%. In terms of CBSAs, Los Angeles accounts for 19.3% of the pool, followed by Miami, Riverside, San Francisco and New York, with 16.7%, 7.4%, 5.0% and 4.7% of the pool, respectively.
On a non-zero weighted average (WA) basis, the borrowers have an original credit score of 738, a non-zero WA debt-to-income ratio of 33.6%. Borrowers also exhibit substantial equity in the mortgaged properties, as demonstrated by both the WA original loan-to-value ratio, and combined LTV of 71.4%.
The average balance of the loans, all of which are first lien, is $521,712. Also, on a non-zero, WA basis, borrowers have an annual income of $644,512 and liquid reserves of $583,568.
Aside from being first-lien mortgages, a majority of the loans, 65.9%, are meant for loan purchases, and half of the properties—80.8% of which are single-family or planned-unit developments—are owner-occupied.
