- Investment firm plans securities backed by `non-prime' loans
- Offering of $134 million of notes follows deal from Lone Star
Angel Oak Capital is testing demand in the re-emerging market for securities tied to riskier new U.S. mortgages.
The investment firm is working with underwriter Nomura Holdings Inc. to find buyers for about $134 million of unrated notes backed by $149 million of loans, according to preliminary offering documents obtained by Bloomberg. The mortgages were originated by an affiliated lender under two programs for borrowers who can’t qualify for government-backed loans, including a so-called non-prime offering that can give homeowners who recently defaulted a chance to buy again.
Ever since the U.S. housing crisis, Wall Street’s mortgage-bond issuance has been largely limited to bundling old, soured debt or big loans made to the wealthiest Americans, with the only securities backed by new loans to delinquency-prone borrowers guaranteed by taxpayers. Lone Star Funds broke the drought with a $72 million offering last month managed by Credit Suisse Group AG.
As with the Lone Star deal, the mortgages backing the planned Angel Oak securities carry average credit scores higher than cutoffs typically used to deem debt as "subprime," showing how lenders can meet underserved borrowers without taking huge risks. For loans with scores in the transaction, the average is 682, compared with the 620 minimum generally required by taxpayer-backed Fannie Mae and Freddie Mac.
Frederick Martino, a spokesman for Atlanta-based Angel Oak, said the company couldn’t comment on the deal. Inside Mortgage Finance and the Financial Times reported on the offering earlier.
Some of the mortgages were made to borrowers whose incomes were calculated using their bank statements rather than pay stubs and tax returns, the documents show. Interest rates on the mostly 30-year fixed loans average almost 7.6 percent, with original loan-to-value ratios at about 75 percent. Most fall outside a regulatory status known as qualified mortgages, exposing buyers to potential lawsuits from consumers who claim they couldn’t afford the debt.
Angel Oak’s private Strategic Mortgage Income Fund is retaining slices of the deal first in line to bear losses and will repurchase loans that fail to match their promised quality, the documents show.