KBRA has assigned preliminary ratings to six classes of mortgage pass-through certificates from Angel Oak Mortgage Trust 2022-2 (AOMT 2022-2), a $578.4 million non-prime residential mortgage-backed securities (RMBS) transaction.
AOMT 2022-2 is sponsored by Angel Oak Real Estate Investment Trust III LLC, consisting of collateral originated by Angel Oak Home Loans LLC, Angel Oak Mortgage Solutions LLC, Angel Oak Prime Bridge, Finance of America Mortgage LLC, and eight other third-party originators who each originated less than 10% of the pool by UPB.
The underlying collateral, comprising 1,139 residential mortgages, is characterized by a notable concentration of alternative or non-traditional income documentation (89.6% of the pool).
KBRA assigned the preliminary rates as follows:
- A-1: AAA
- A-2: AA+
- A-3: A
- M-1: BBB-
- B-1: BB-
- B-2: B-
- B-3, A-IO-S, XS, R: Not rated.
A majority of the loans in the subject pool were originated using alternative or non-traditional income documentation, KBRA said. Such alternative income documentation (such as asset qualification, investor cash flow/Debt Service Coverage Ratio (DSCR) or business/personal bank statements) along with other permutations of non-traditional income documentation, may result in higher default risk than loans with more traditional income qualification (i.e., 2 years of tax returns/W2s), it said. This potential risk is partially mitigated for these loans via lower leverage along with relatively higher scores, it said.
Approximately 73.6% of the loans were designated as non-QM, and do not benefit from the safe harbor legal protections and are potentially at heightened risk of litigation-related losses, KBRA said. The remainder of the collateral pool is exempt from the ability-to-repay rules, as the loans were originated for investment properties.
KBRA said its rating approach incorporates loan-level analysis of the mortgage pool through its RMBS Credit Model, an examination of the results from third-party loan file due diligence, cash-flow modeling analysis of the transaction’s payment structure, reviews of key transaction parties, and an assessment of the transaction’s legal structure and documentation.
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