Angel Oak Capital brings $581M private-label deal to market

Angel Oak Capital Advisors issued its first securitization of 2023, with a significant portion of the underlying loans coming from its affiliate Angel Oak Mortgage.

The transaction consists of 1,073 loans with an unpaid principal balance of approximately $580.5 million. The average original credit score is 736, with an original average loan-to-value ratio of 71.1%, and a non-zero debt-to-income ratio of 32.2%.

"Strong institutional investor interest and attractive spread tightening are supportive of the overall non-agency RMBS market that we believe could see a resurgence in 2023," said Namit Sinha, chief investment officer of private strategies at Angel Oak Capital Advisors, in a press release. "We intend to play a larger role in this space in the coming months, depending on market conditions."

However, analysts that follow the private-label securitization business believe this market could sink even further this year when compared with 2022, they said in December forecasts, although some outlooks issued in early January were more hopeful.

Angel Oak Mortgage contributed $241.3 million of the loans. This is the first securitization that it has participated in alongside other Angel Oak units since the real estate investment trust went public in June 2021, it said in a press release.

This securitization, along with loan sales that took place in November and the conversion of $286 million to non-mark-to-market later that month, has reduced Angel Oak Mortgage's whole loan warehouse debt by approximately 51% and its mark-to-market percentage of total warehouse debt by approximately 62% since the end of third quarter of 2022. It reported a loss of $83.3 million for that quarter.

"This demonstrates further execution of the steps previously outlined in our strategic plan to reposition our portfolio, improve liquidity, reduce risk, and protect our capital structure," said Sreeni Prabhu, Angel Oak Mortgage's CEO and president. "We are pleased to return to the securitization market, and we look forward to executing additional securitizations in the coming months while reinvesting capital into recently originated, higher coupon loans."

Angel Oak Home Loans, which now houses the consumer direct and correspondent businesses, and Angel Oak Mortgage Solutions, the wholesale production unit, together originated over 90% of the loans in the securitization, a Fitch Ratings note on the deal said. Angel Oak Home Loans sold its retail branch network in November.

Fitch rated six of the tranches, with only the A-1 class at "AAAsf." This tranche has a balance of $434.5 million.

"Although the borrowers' credit quality is higher than that of AOMT transactions securitized in 2022 and 2021, the pool's characteristics resemble those of non-prime collateral, and, therefore, the pool was analyzed using Fitch's nonprime model," the rating agency noted in its report. AOMT made six issuances last year, the final one in September.

Approximately two-thirds, 67.4% were non-qualified mortgage loans, while the remaining 32.6% were investment properties not subject to the ability-to-repay rule.

The pool contains 128 loans over $1 million, with the largest with a balance of $3.5 million. Meanwhile, 38 of the loans in the securitization are eligible to have been purchased by Fannie Mae or Freddie Mac, Fitch said.

Among the negative drivers for Fitch's ratings was unsustainable home prices.

"Fitch views the home price values of this pool as 8.1% above a long-term sustainable level (vs. 10.5% on a national level as of January 2023, down 1.7% since last quarter)," the rating report said. "Underlying fundamentals are not keeping pace with the growth in prices, resulting from a supply/demand imbalance driven by low inventory, favorable mortgage rates, and new buyers entering the market."

In addition, three of the five adjustable rate mortgages in the deal are tied to Libor, although the securitization's bonds do not have any exposure to that index.