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KBRA Preliminarily Rates Non-QM Offering OBX 2022-NQM7

David Krechevsky
Aug 15, 2022
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The $359 million non-prime RMBS transaction comprises 681 mortgages, 83.5% of which utilized alternative income documentation.

KBRA has assigned preliminary ratings to six classes of mortgage pass-through notes from OBX 2022-NQM7 Trust (OBX 2022-NQM7), a $358.9 million non-prime residential mortgage-backed securities (RMBS) transaction. 

The underlying collateral, comprising 681 residential mortgages, is characterized by a notable concentration (83.5%) of alternative income documentation. 

OBX 2022-NQM7 is sponsored by Onslow Bay Financial LLC. 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 purchases all residential whole loans through Onslow Bay.

The loans in the OBX 2022-NQM7 collateral pool were originated by relatively small, unrated entities and underwritten to non-traditional income documentation. Each lender contributed less than 15% of the mortgage loans; the largest originator (13.1%) was SG Capital Partners LLC.

Most loans are either classified as non-qualified mortgages (Non-QM; 57.5%) or exempt from the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule due to being originated by a Community Development Financial Institution (CDFI; 4.3%) or for non-consumer loan purposes (37.2%). 

The CDFI originated loans comply with ATR standards, as confirmed by a third-party review firm, and have at a minimum 12 months of bank statements or tax returns documenting borrower income. 

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

KBRA assigned 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 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.

Read the full report at www.kbra.com (registration required).

Published
Aug 15, 2022
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