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KBRA Assigns Preliminary Ratings To Non-QM Offering

May 02, 2022
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OBX 2022-NQM4 Trust is a $457.3 million non-prime residential mortgage-backed securities transaction. 

KBRA has assigned preliminary ratings to seven classes of mortgage pass-through notes from OBX 2022-NQM4 Trust (OBX 2022-NQM4), a $457.3 million non-prime residential mortgage-backed securities (RMBS) transaction. 

The underlying collateral, comprising 704 residential mortgages, is characterized by a notable concentration (79.0%) of alternative income documentation. With respect to the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule, approximately 70.7% of the loans were categorized as non-qualified mortgages (Non-QM). The remaining loans were either QM: Rebuttable Presumption (0.4%), or exempt from the ATR/QM rule (28.9%) due to being originated for business purposes (i.e., investment properties).

OBX 2022-NQM4 is sponsored by Onslow Bay Financial LLC (Onslow Bay). Onslow Bay was formed in July 2013 and operates as a wholly owned subsidiary of Hatteras Financial Corp., which was acquired in July 2016 by Annaly Capital Management Inc. (Annaly). 

Annaly purchases all residential whole loans through Onslow Bay. The company purchases a mix of agency-eligible, prime jumbo, and expanded/non-prime collateral. To date, purchase activity has been in the agency-eligible and expanded/non-prime sectors. The loans in OBX 2022-NQM4 were sourced through acquisitions and bulk transactions from several aggregators and lenders, with a diverse set of originators contributing collateral to the subject pool.

This transaction contains loans which KBRA generally considers to be non-prime due to certain loan or borrower characteristics that include borrowers with blemished credit history and the use of bank statements and other forms of alternative documentation to document income.

KBRA assigned preliminary rates as  follows:

  • A-1A, A-1B: 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. 

KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its U.S. RMBS Mortgage Default and Loss 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.

To read the full report, visit www.kbra.com (registration required).

About the author
David Krechevsky was an editor at NMP.
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