Angel Oak Mortgage shares plateau after downscaled IPO launch

Angel Oak Mortgage, a company that buys home loans made to nontraditional borrowers, launched a downsized initial public offering Thursday; and at press time Thursday afternoon was seeing its stock trade evenly at levels between $18 and $19 per share.

The real estate investment trust, which also buys small-balance commercial mortgages, priced its offering of 7.2 million shares at a starting price of $19 each. Underwriters have the option to purchase an additional 1.08 million shares of the company’s stock within 30 days. The company originally had planned to sell 8.05 million shares at a price of $20-$21 each, and give underwriters the option to purchase roughly an additional 1.21 million shares. At the completion of the offering, Angel Oak will sell more than 2.1 million shares of its common stock to CPPIB Credit Investments Inc. in a concurrent private placement at $19.00 per share.

The relatively steady public demand for the company’s stock suggests investors are receptive to the notion that lending to certain self-employed borrowers and others who don’t have W-2 incomes could be a growth engine for lenders as other sources of mortgage volume weaken. The loans that Angel Oak buys are those that lie outside the evolving qualified mortgage definition that serves as an indication loans meet the parameters of the Dodd-Frank Act’s ability-to-repay rule. The rule was created to hold lenders responsible for ensuring borrowers have the financial wherewithal to make loan payments after a wave of improperly underwritten loans led to a housing crash in the mid-2000s.

The onset of the pandemic temporarily disrupted the market for non-QM loans last year, but it has made a comeback as traditional lending spurred by record-low rates last year has slowed.

Recent examples include the privately-held Sprout Mortgage’s announcement on Tuesday that it is building out its retail channel by leveraging its traditional expertise in non QM. Also A&D Mortgage and Imperial Fund announced Tuesday that they recently closed on the issuance of a $214 million non-QM securitization.

Other publicly traded nonbanks with expertise in non-QM include Finance of America and Impac Mortgage Holdings. While Finance of America is not exclusively focused on non-QM loans, its president, Bill Dallas, is a mortgage industry veteran who has worked extensively with them.