KBRA Assigns Preliminary Ratings To Onslow Bay Non-QM Securitization

Kroll Bond Rating Agency (KBRA) said recently it has assigned preliminary ratings to six classes of mortgage pass-through notes from OBX 2023-NQM1 Trust (OBX 2023-NQM1), a $405.2 million non-prime residential mortgage-backed securities (RMBS) transaction. 

OBX 2023-NQM1 Trust was issued by Onslow Bay Financial LLC as seller/sponsor. Onslow Bay operates as a wholly owned subsidiary of Hatteras Financial Corp., which is owned by Annaly Capital Management Inc. Annaly purchases all residential whole loans through Onslow Bay.

The loans in the OBX 2023-NQM1 collateral pool were originated by relatively small, unrated entities and underwritten to non-traditional income documentation, KBRA said. With the exception of AmWest Funding Corp., the largest originator comprising 27.8% of the pool, each other originator contributed less than 15% of the mortgage loans.

The underlying collateral, comprising 842 residential mortgages, is characterized by a notable concentration of alternative income documentation (92%). Most of the loans (62.9%) are either classified as non-qualified mortgages (Non-QM) or exempt from the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule due to being originated for non-consumer loan purposes (36.8%).

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: BB (sf)
• B-2: B (sf)
• B-3, A-IO-S, XS, R: Not rated.

KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its KBRA 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. 

The full KBRA report is available here (registration required).