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KBRA Rates Non-QM Offering From Onslow Bay Financial

David Krechevsky
Sep 22, 2022
Onslow Bay Financial LLC

AmWest Funding Corp., others originated the 765 loans in the $397.5 million non-prime RMBS transaction.

KBRA has assigned preliminary ratings to six classes of mortgage pass-through notes from OBX 2022-NQM8 Trust (OBX 20220-NQM8), a $397.5 million non-prime residential mortgage-backed securities (RMBS) transaction, the company said Thursday.

OBX 2022-NQM8 is sponsored by Onslow Bay Financial LLC, which was formed in July 2013 and operates as a wholly owned subsidiary of Hatteras Financial Corp. Hatteras was acquired in July 2016 by Annaly Capital Management Inc., which purchases all residential whole loans through Onslow Bay.

The loans in the OBX 2022-NQM8 collateral pool were originated by relatively small, unrated entities and underwritten to non-traditional income documentation. With the exception of AmWest Funding Corp., the largest originator comprising 47.3% of the pool, each originator contributed less than 15% of the loans.

The underlying collateral comprises 765 residential mortgages characterized by a notable concentration (91.3%) of alternative-income documentation. Most of the loans (59.6%) are either classified as non-qualified mortgages (Non-QM) or are exempt from the Ability-to-Repay/Qualified Mortgage (ATR/QM) rule due to being originated for non-consumer loan purposes (38.8%).

The transaction also includes foreign national borrowers (6.8%), where at least one borrower was a foreign national or non-permanent resident.

This transaction contains loans that 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, it said.

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.

The full report is available at www.kbra.com (registration required).

Published
Sep 22, 2022
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