After getting pummeled last year in the secondary market, non-qualified mortgage (Non-QM) securitizations appear to be on the rebound.
Both Fitch Ratings and KBRA recently rated six classes of mortgage pass-through notes from OBX 2023-NQM3 Trust (OBX 2023-NQM3), a $407.5 million non-prime residential mortgage-backed securities (RMBS) transaction.
The underlying collateral, comprising 807 residential mortgages, is characterized by a notable concentration of alternative income documentation (89.1%). The loans in the collateral pool were originated by 69 institutions, many of them relatively small, unrated entities that contributed less than 10% of the loans. The largest originator was SG Capital Partners, LLC, which originated loans comprising 21.9% of the pool.
Most of the loans (68.5%) are either classified as Non-QM or as exempt from the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule due to being originated for non-consumer loan purposes (27.4%) or by a CDFI (3.6%).
KBRA assigned its ratings as follows:
- A-1: AAA (sf)
- A-2: AA (sf)
- A-3: A (sf)
- M-1: BBB (sf)
- B-1: BB+ (sf)
- B-2: B+ (sf)
- B-3, A-IO-S, XS, R: Not rated
Fitch said it expects to assign ratings as follows:
- A-1: AAA (sf)
- A-2: AA (sf)
- A-3: A (sf)
- M-1: BBB (sf)
- B-1: BB (sf)
- B-2: B (sf)
- B-3, A-IO-S, XS, R
The collateral consists of 15-year, 30-year, and 40-year fixed-rate and adjustable-rate mortgage (ARM) loans. ARMs constitute 14.06% of the pool as calculated by Fitch, which includes 3.7% debt service coverage ratio (DSCR) loans with a default interest rate feature; 12.4% are interest-only (IO) loans; the remaining 85.94% are fully amortizing loans.
The pool is seasoned approximately 10 months in aggregate, as calculated by Fitch (eight months per the transaction documents). Borrowers in this pool have a moderate credit profile with a Fitch-calculated weighted average (WA) FICO score of 742, debt-to-income ratio of 40%, and moderate leverage of 74% sustainable loan-to-value ratio. Pool characteristics resemble recent nonprime collateral, Fitch said,
You can read the Fitch Ratings report here, and the KBRA report here (registration required).
