With plans for quarterly securitizations, Angel Oak Mortgage REIT said promising signs appear in secondary-market trends, as it continues to try to build up its liquidity levels.
The real estate investment trust, which focuses on acquisitions and
The $284.5 million securitization "enhanced liquidity positions and supported our ability to purchase newly originated high yielding loans from our affiliated loan originators," said company CEO Sreeni Prabhu in its second-quarter earnings call.
"We have probably enough capacity for three to four good-sized securitizations with new coupon loans before we either have to wait and get principal payments back in to keep growing or look to the capital market at that time to grow," said Chief Financial Officer Brandon Filson on the call. He estimated total capacity for new transactions to fall between $1 billion and $1.5 billion worth of loans.
But unrealized losses on loans, securitization trusts and corresponding liability from mark-to-market valuations still pushed the REIT back into the red with a $3.7 million net loss in the second quarter, equaling a 15 cent per diluted share decline. The loss comes after Angel Oak managed to
Still, company officials saw positive signals emerging toward the end of the three-month period. "While mortgage originations and applications are separate, we are experiencing some modest but encouraging recovery to demand, supporting our view that our business is positioned to capitalize and drive growth," Prabhu said.
Angel Oak leaders also said tightening securitization spreads since the end of the second quarter had produced favorable tailwinds. "We have seen meaningful tightening in spreads for not just non-QM but across the board," said Namit Sinha, co-chief investment officer of affiliated Angel Oak Capital Advisors.
"Overall, we see a benefit to that spread tightening for our portfolio," Sinha added.
The second-quarter securitization released over $35 million of capital, helping to shore up liquidity after mortgage headwinds in the non-QM market
At the end of the quarter, the company held $59.1 million in available cash, up over 60% from $36.8 three months earlier and more than double the $29.2 million at the end of last year. Twelve months ago, cash assets came in at $16.1 million.
"This additional liquidity provides us with the dry powder for sustained loan purchases that will grow net interest income, improve cash flows and support securitization execution," Filson said.
Since the beginning of April, the REIT had purchased or locked approximately $50 million worth of newly originated loans.
Within its current portfolio, 39% consists of mortgages with criteria that just missed the cutoff to be classified as prime, while 35% were made to bank-statement borrowers. Another 24% were investor loans, with the remaining 2% made for non-owner occupied properties. Total fair value of home loans awaiting securitization was $296.5 million with an average weighted credit score of 740 at origination.
While vectors appear to be heading upward, Prabhu noted the threat of continued market and rate volatility on Angel Oak's bottom line. "Credit risk remains on the radar for the industry," he said, while also adding his company was prepared to address it.
"By leveraging the Angel Oak ecosystem, we have the ability to adjust credit offerings based on certain characteristics," Prabhu said.
