A thorn in the side of the U.S. economy and long considered a contributor to the Great Recession, mortgage-backed bonds may be rising from the dead, but they have little in common with their former incarnation. According to a report by CNBC, the mortgages backed by these new bonds exist outside the strict guidelines of government-backed securitizations, and the borrowers do have some dings on their credit reports, but these loans are fully underwritten, require significant down payments and come fully documented. Michael Fiermani is co-founder and CEO of Angel Oak Capital Advisors, a company that announced its first rated securitization of non-agency residential mortgages recently. The $148 million securitization was rated AAA by the Fitch and DBRS ratings agencies. Fierman said the nonqualified mortgages market is slowly coming back to life after shrinking to next to nothing since the recession.
“We’re verifying, and in the regulatory environment you have to. Investors who buy these loans demand it. So yes, some of these borrowers have had some credit dings or other issues that take them out of the box, but they’re not necessarily higher-risk borrowers, I would argue.”
Angel Oak has handled three securitizations since 2015, and all three are backed by loans originated through the firm’s two affiliated mortgage lenders. A few others have gotten back into this market but mostly with older, subprime loans that have been bundled together. Fierman said these are newer loans from one entity. That helped in selling the idea to investors.
“It started slow, as any new product does, and you’re under a microscope and we do a lot of talking to investors and educating them on what’s different and why you should be interested in this.”
Rising rates will likely make these products more attractive, as will the performance of the loans over time. Sanjiv Das, CEO of Caliber Home Loans, said the company is also originating mortgages to borrowers who are outside the credit box and has done five securitizations of nonprime loans.
“So these are fantastic borrowers that the mainstream lending has left behind that we are lending to, and we’ve found that the risk profile has been fantastic in the last few years.”
