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November 09, 2018  

Angel Oak Seeks Capital for MBS Vehicle

Angel Oak Capital is marketing a fund that would buy slices of its own mortgage securitizations — a sure sign the lender plans to ramp up issuance.

The Atlanta firm is seeking to raise at least $600 million for the drawdown vehicle, Angel Oak Real Estate Investment Fund 2, which is designed in part to help Angel Oak meet risk-retention requirements. A source said Angel Oak already has lined up about $100 million of commitments for the offering.

The first fund in the series launched in 2016 with $300 million.

Angel Oak originates home loans that don’t meet the Bureau of Consumer Financial Protection’s “qualified-mortgage” standards. In the past two years, it has securitized portfolios of non-qualified mortgages via six rated transactions totaling $1.5 billion.

Under Dodd-Frank Act rules requiring issuers to keep skin in the game, Angel Oak retains a 5% “vertical” slice from each of its mortgage-bond offerings. Its most recent deal, a $368.1 million issue that priced Aug. 16, had six rated tranches rated from triple-A down to single-B and an unrated first-loss piece.

Angel Oak might tap the new fund to retain bonds in excess of the 5% minimum. Even if that’s the case, the lofty capital-raising goal for Angel Oak Real Estate Investment Fund 2 suggests the firm plans to substantially increase its securitization volume.

Angel Oak was among the first mortgage lenders to issue bonds backed by non-qualified mortgages — an asset class that has quickly grown from three deals totaling $571.2 million in 2016 to 18 deals totaling $6.9 billion so far this year, according to Asset-Backed Alert’s ABS Database.

A report Bank of America issued on Nov. 5 forecast total deal volume will jump to $14 billion next year.

Leading issuers include Lone Star Funds, which has sold $2.5 billion of non-qualified mortgage paper since 2016; Invictus Capital ($2 billion); and Varde Partners ($1.7 billion).

Angel Oak is led by founders Michael Fierman, Brad Friedlander and Sreeni Prabhu. The firm has $9.5 billion under management, on a gross basis, up from $8.4 billion at yearend 2017.