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KBRA has assigned preliminary ratings to four classes of mortgage pass-through certificates from SG Residential Mortgage Trust 2022-2 (SGR 2022-2).
SGR 2022-2 is a $349.5 million non-prime residential mortgage-backed securities (RMBS) transaction comprising 670 residential mortgages, and is characterized by a significant concentration of loans underwritten using alternative income documentation. Borrowers in the subject pool possess a non-zero weighted-average (WA) original credit score of 738, and exhibit moderate equity in each mortgaged property, with a combined loan-to-value (CLTV) ratio of 71.4%.
KBRA assigned the preliminary ratings as follows:
- A-1: AAA (sf)
- A-2: AA (sf)
- A-3: A- (sf)
- M-1: BBB- (sf)
- B-1, B-2, B-3, B-3-C, C, XS, XS-1, XS-2, XS-2-C, P, A-IO-S, R, LT-R: Not rated.
SGR 2022-2 is sponsored by Shelter Growth Master Residential Mortgage Credit Fund A LP (SGCP), with an aggregate unpaid balance of approximately $349.6 million as of the July 1, 2022, cut-off date. Of the loans in the pool, 54.4% were originated by an affiliate of the sponsor: SG Capital Partners LLC, doing business as ClearEdge Lending. Another 25.3% of the loans were originated by Paramount Residential Mortgage Group Inc.
The mortgage loans were underwritten using alternative income documentation that included 12-month bank statements (43.2%), asset utilization (1.0%), DSCR (33.7%) or investor no ratio (4.0%) or full documentation (14.1%).
Approximately 51.6% of the loans were categorized as non-qualified mortgages (Non-QM) with respect to the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule, and 0.7% were categorized as QM: Safe Harbor. The remaining loans (47.7%) were exempt from the ATR/QM rule due to being originated for business purposes (i.e., investment properties).
SGR 2022-2 also includes loans originated to borrowers with prior credit events (1.5%) and foreign national borrowers (2.5%, where at least one borrower was a foreign national or nonpermanent resident alien).
Generally, KBRA views the SGR 2022-2 collateral to be non-prime because of the prevalence of alternative forms of income documentation. However, the borrowers in the pool do exhibit certain credit attributes seen in prime or expanded prime RMBS, including fairly strong credit scores and relatively low LTV ratios, KBRA said.
KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its RMBS Credit Model, an examination of the results from third-party loan file due diligence performed at the time of origination of the loans, 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.
You can read the full report at www.kbra.com.