Angel Oak Real Estate Investment TRS is sponsoring a $418.1 million mortgage-backed securities transaction that will issue notes through the Angel Oak Mortgage Trust 2021-8. A pool of 841 non-prime residential properties will secure the notes.
Morgan Stanley & Co., Barclays Capital, Deutsche Bank Securities and Goldman Sachs & Company are initial note purchasers on the deal, AOMT 2021-8. The transaction will issue notes and payments to bondholders through a senior-subordinate, sequential structure, according to Kroll Bond Rating Agency, which plans to assign ratings to the notes.
The AOMT 2021-8 waterfall will distribute principal to all of the certificates at all times, including A-1 through A-3. Principal remittance amounts to pay any outstanding interest shortfalls for the senior-most class of certificates, and then pay down the class principal balance, KBRA said.
FitchRatings expects to assign ratings to the notes, while noting that it believes home price values in this pool are 10.5% above long-term sustainable levels.
“Underlying fundamentals are not keeping pace with the growth in prices, which is a result of a supply/demand imbalance driven by low inventory, low mortgage rates and new buyers entering the market,” analysts wrote in its pre-sale report.
For its part, KBRA expressed concerns about the amount of mortgages that are financing investment properties. Non-qualified mortgages comprise the majority of the pool, 78%, but the rest of the loan pool is exempt from ability-to-repay (ATR) requirements, as they were originated for investment purposes, KBRA said. Mortgages on non-owner occupied properties have demonstrated a higher tendency to default, the rating agency said.
KBRA expects to assign ‘AAA’ ratings ranging from ‘AAA’ on the $340 million, class A-1 notes to ‘BB-’ on the B-2 tranche. Fitch expects to assign ‘AAA’ ratings to the senior notes, and ‘B’ to the B-2 tranche, the rating agency said.
Excess spread will provide credit enhancement, the company said. The A-1 notes benefit from 18.6% of credit enhancement, while the B-2 piece will benefit from 2.6%, KBRA said.
KBRA noted several mitigating factors, however. Among the investment property loans, 15% were underwritten on debt service coverage ration (DSCR) rules, representing the largest subset.
