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May 08, 2020  

Angel Oak Kick-Starting Non-QM Lending

Angel Oak is plotting a comeback.

A month after the coronavirus crisis forced the Atlanta mortgage originator to temporarily shut down lending and lay off 70% of its workforce, it last week began circulating a new rate sheet that lays out the terms for two types of loans that fall outside the Consumer Financial Protection Bureau’s “qualified-mortgage” guidelines.

The first is a loan available to individuals who can furnish 24 months of bank statements but may not otherwise be able to document their incomes. The second is a full-documentation jumbo mortgage. That’s a first for Angel Oak, which has rarely originated or securitized jumbo loans. Both loan types require borrowers to have a minimum credit score of 700 with a maximum loan-to-value ratio of 75%.

Angel Oak is financing the new accounts with existing credit lines from banks, possibly including Morgan Stanley and Nomura. Sources who have held discussions with the company say it’s likely to begin packaging the new accounts into mortgage bonds after a few months.

Prior to the crisis, the bulk of Angel Oak’s deals were backed by bank-statement loans. But a majority of the accounts had less than 24 months of statements. For instance, it priced a $338.2 million deal on Jan. 17 in which 44.3% of the loans in the pool had 12-23 months of statements, according to a presale report from S&P. Deutsche Bank, Morgan Stanley and Nomura ran the books. That deal’s cumulative loan-to-value ratio was 74.6%, and it had an average borrower credit score of 711, although 35.8% had scores below 700.

Angel Oak declined to comment on its bond-issuing plans for the new loans it’s aggregating, but it’s no secret that securitization is its preferred form of financing. Angel Oak was one of the most active issuers of non-qualified mortgage bonds before the coronavirus pandemic abruptly halted its business. Since entering the market in 2017, the company has completed 13 non-qualified mortgage-bond deals totaling $4.7 billion, according to Asset-Backed Alert’s ABS Database. Last year, it completed six deals totaling $2.9 billion.

The move to begin offering new types of non-qualified home loans comes as many of Angel Oak’s peers also have been hobbled by the virus, with many selling their portfolios at discounts in response to a wave of margin calls from banks. Sprout Mortgage, for example, unloaded a $900 million pool of non-qualified loans on May 1.

Since then, the market has shown some faint signs of rejuvenation. In addition to Angel Oak, issuers including MFA Financial are in the planning stages of new deals.