• Expert Quote: "During the quarter, non-QM and the fixed income market became more challenging" — Sreeni Prabhu, CEO and president
• Supporting Data: A $24 million hit to earnings from the company's securitization portfolio. 

Overview bullets generated by AI with editorial review.   

Distributable earnings for the third quarter Angel Oak Mortgage REIT were below estimates because of lower than expected net interest income, although the total economic return for the company's stock was better than BTIG's forecast, its post-earnings report said.

On a GAAP basis, the non-qualified mortgage securitizer lost $16.7 million, compared with $3.4 million of net income in the second quarter and $11.4 million one year prior.

The primary driver was a $24 million hit related to realized and unrealized net losses in its securitization portfolio, Brandon Filson, chief financial officer, said on the earnings call.

How Angel Oak compared with other mREITs

The BTIG report noted the consensus for distributable earnings was 4 cents per share over what Angel Oak reported. The REIT came in at 28 cents per share, and when realized gains on rate hedges are excluded, the miss to BTIG was 5 cents per share.

"AOMR's economic book value performance is below the peer average of residential credit mREITs that have reported third-quarter book value so far, though we would note there is a wide range of 3Q book value performance (+2% to -20%)," wrote Douglas Harter, managing director at BTIG.

Angel Oak's management said its business in the quarter was affected by macro factors in the market.

Factors which impacted Angel Oak's results

"During the quarter, non-QM and the fixed income market became more challenging as higher rates and a shift upward in the yield curve pressured asset valuation and compressed financing spreads across [the] mortgage credit market," said Sreeni Prabhu, CEO and president, on the earnings call. "While this environment negatively impacted book values across the landscape, as expected, Angel Oak's underlying credit performance of her portfolio remained stable and continued to perform in line with our expectations."

Any valuation pressure reflects what is happening in the broader markets than any deterioration in credit quality or the underlying mortgage performance, which is an important distinction, Prabhu said.

The REIT completed two securitizations in the quarter, before the height of the increase in interest rates. It has offered one so far in the current period, which Prabhu said was to mitigate further rate risk.

Current market conditions are affecting Angel Oak's buying

Lately, non-QM production has declined and the higher interest rate environment compressed returns on new investment. But Angel Oak is continuing to buy loans which meet its credit and return criteria.

"We remain deliberate in pacing of our capital deployment across loan businesses and disciplined in maintaining underwriting standards that are central to our strategy, rather than extending risk and pursuing incremental returns at the expense of long-term credit performance," Prabhu said.

However, a Bank of America Securities report from Oct. 30 noted the strong growth in non-QM originations which have come to market has not been reflected in the rate lock data. 

"We think this has to do with the increase in non-QM originators, with already more than 50 new originators in 2026," the report from Pratik Gupta, Chris Flanagan and Andy Fan said. "Either way, there is likelihood that rate lock is still underestimating the amount of supply that the non-QM market will see for this year and the beginning of 2027."

Through Oct. 30, $100 million of non-QM issuance has been made during 2026, up from $59 million at the start of July, B of A said.

During the Q&A, Filson noted that typically these mortgages take 30-to-60 days to go through the lock process before they are closed and ready for securitization.

Current returns are not quite as good as Angel Oak expects but they are starting to recover, he continued. But if the rate environment stays where it is, the set of locks the REIT gets through the next month will be back at return levels it expects.

Management was asked about the state of the market, particularly if it is seeing more home equity line of credit business versus non-QM.

From Angel Oak's perspective, the non-QM market remains strong, Filson said.

In July, Angel Oak did a HELOC securitization with a current balance of $221.4 million.

After the issuance, "we pulled back a little bit on the HELOC purchasing for the quarter, so we didn't really purchase too many in the quarter," Filson said. "But that's a switch and a valve that we could turn on and off very easily."