Angel Oak closes on 1st RMBS with third-party originations

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Angel Oak this week closed on its largest private-label mortgage securitization to date, and the first to included loans originated by a third party.

While the vast majority (95.3%) of the 1,096 loans used as collateral were originated in-house, 4.7% came from two outside originators, according to DBRS: Sterling Bank & Trust (2.9%) and an unidentified originator (1.8%).

Sterling will be servicing the loans that it originated; all of the other loans will be serviced by Select Portfolio Servicing, a unit of Credit Suisse.

By comparison, the firm’s six previous transactions were all backed by subprime loans originated by one of three affiliate companies, Angel Oak Home Loans, Angel Oak Mortgage Solutions or Angel Oak Prime Bridge.

Lauren Hedvat, Angel Oak's managing director of capital markets, said that the rising non-QM volume in the market has expanded the number of third-party origination loan packages for purchase. “Angel Oak opportunistically evaluates loan packages available for purchase as a complement to our in-house origination,” she said.

The latest transaction, AOMT 2018-2, was also notable for including some collateral (8.2% of the total balance contributed by Angel Oak) that was recycled from the sponsor’s first securitization completed in 2015. The loans collateralizing the 2015 deal were prepaying relatively quickly, making the deal less economical to manage and June was the first time it was eligible for an optional redemption.

The first loan product Angel Oak offered had a coupon of 9.9%, several percentage points higher than the products it is now offering to borrowers with similar credit profiles. “Many of those loans composed the collateral pool of our inaugural transaction in December 2015, AOMT 2015-1; a number of those borrowers have since refinanced into products with lower coupons,” Hedvat said.

Prepayments on subsequent deals are “still relatively fast, but they have been trending lower,” she said.

The loan attributes and pool composition are in-line with Angel Oak’s previous securitizations, according to DBRS. The average loan balance is $366,797, the weighted average coupon is 6.772%, the weighted average FICO is 702 and the weighted average cumulative loan-to-value ratio is 76.9%. The weighted average debt-to-income ratio, at 33.6%, is slightly lower than the 35.4% for Angel Oak's prior transaction, completed in April.

By product type, the collateral was a mix of loans to borrowers with prime or near-prime credit who fail to qualify for government-guaranteed loans because they are self-employed, have recently been involved In a bankruptcy, foreclosure or have missed multiple loan payments; and loans to borrowers who are foreign nationals or are buying investment properties.

Hedvat didn’t rule out the possibility that future deals could be backed by a single loan product, however.

“As volume continues to grow, we’re always monitoring what we think is the right overall composition of our deals," she said. "When we reach the point that we have critical mass in some of our newer loan products, it may make sense to bifurcate deals by product.”

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RMBS Subprime lending Private-label