DBRS, Inc. (DBRS) has completed its preliminary ratings for the following Mortgage-Backed Certificates, Series 2019-3 (the Certificates) issued by Angel Oak Mortgage Trust 2019-3 (AOMT 2019-3 or the Trust):
-- $227.0 million Class A-1 in AAA (sf)
-- $26.7 million Class A-2 in AA (sf)
-- $53.2 million Class A-3 in A (sf)
-- $31.3 million Class M-1 at the BBB (sf)
-- $16.2 million Class B-1 in BB (sf)
-- $16.6 million Class B-2 in B (sf)
The AAA (sf) rating of the A-1 Certificates reflects the 40.45% credit enhancement provided by the group's subordinate certificates. The AA(sf), A(sf), BBB(sf), BB(sf) and B(sf) ratings reflect credit enhancement of 33.45%, 19.50%, 11.30%, 7.05% , respectively, and 2.70% reflected.
In addition to the classes specified above, DBRS does not qualify any other classes in this transaction.
This transaction is a securitization of a portfolio of primarily non-prime fixed and adjustable rate senior residential mortgages funded by the issuance of the Certificates. The Certificates are secured by 1,169 loans with an aggregate principal amount of $381,253,566 on the Effective Date (May 1, 2019).
Angel Oak Home Loans LLC (AOHL), Angel Oak Mortgage Solutions LLC (AOMS) and Angel Oak Prime Bridge LLC (collectively Angel Oak) provided 100.0% of the portfolio (1,169 loans). Angel Oak senior mortgages come primarily from the following eight programs:
(1) Portfolio Select (54.0%) - Intended for borrowers with near-prime credit who are unable to obtain financing through traditional or government channels because (a) they do not meet credit requirements, (b) they are self-employed and have an alternate income calculation using 12- or 24-month bank statements to qualify, (c) may have a lower credit rating than required by government-sponsored entity underwriting guidelines, or (d) may have been subject to bankruptcy or foreclosure for 24 months or more prior to creation.
(2) Platinum (26.5%) – awarded to borrowers with excellent or near-prime credit ratings but who are unable to obtain financing through traditional or government channels because (a) they do not meet credit requirements, (b) are self-employed and require alternative income calculations using 12 or 24 month bank statements; or (c) may have suffered bankruptcy or foreclosure 48 months or more before the occurrence.
(3) Non-Prime General (9.3%) – Made for borrowers who have not had a real estate event in the last 24 months, but whose credit reports show multiple delays of more than 30 days and/or more than 60 days of some type in reported in the last 12 months.
(4) Investor Cash Flow (7.3%) - Intended for real estate investors with experience in purchasing, leasing and managing investment properties with a proven credit history of five years and at least 24 months of program payment history residential properties but cannot obtain financing through conventional or government channels because (a) they do not meet the requirements of such programs or (b) they may exceed the maximum number of properties allowed. Borrowings made under the Investor Cash Flow program are for business purposes and are not subject to the Ability to Repayment Rules (ATR) or TILA/RESPA Integrated Disclosure.
(5) Recent Non-Prime Housing (1.6%) - Awarded to borrowers who have completed their properties or are subject to a short sale, replacement deed, notice of default, or foreclosure. Borrowers who filed for bankruptcy or severe arrears 12 months or more prior to the origination of the loan may also be considered for this program.
(6) Non-Preferred Foreign Citizen (0.8%) – For investment property borrowers who are foreign nationals and do not reside or work in the United States. Borrowers can use alternative income and credit documents. Income is usually documented by the employer or accountant, and credit is verified through letters from foreign borrowers.
(7) Asset Qualifier (0.3%) - Aimed at prime borrowers with significant assets who can purchase the property with their assets but choose to use a financing instrument for cash flow purposes. The assets must cover the home purchase plus 60 months of debt service and four months of reserves. No documentation of income is obtained, but borrower qualifies based on certain credit requirements (minimum 700 points) and significant equity requirements calculated as 60 times total monthly debt and new PITIA payments (minimum monthly disposable income of $1,300 ). These loans are available through the Platinum and Portfolio Select programs.
(8) Non-Prime Investment Property (0.2%) - Made for real estate investors who may have financed up to four properties mortgaged with originators (or 20 properties mortgaged with all lenders).
In addition, the pool includes 0.2% secondary mortgage loans originated under guidelines set by the Federal National Mortgage Association and covered by Angel Oak.
Select Portfolio Servicing Inc. (SPS) is the service provider for all loans. AOMS acts as the administrator of the service and Wells Fargo Bank, N.A. (Wells Fargo; rated AA with stable trend by DBRS) will serve as lead administrator. The National Association of Banks of the United States (rated AA (high) with stable trend by DBRS) acts as fiduciary and custodian.
Although the mortgage loans were made in compliance with the Consumer Financial Protection Bureau (CFPB) ATR rules, they were made to borrowers who generally do not qualify for preferred agency, government, or non-agency private label products for a variety of reasons. described above. Under CFPB Qualified Mortgage (QM) rules, 0.3% of loans are classified as rebuttable QM presumption and 85.4% as non-QM. Around 14.3% of loans are granted to investors for commercial purposes and are therefore not subject to MoQ rules.
The servicer generally finances advances of principal and interest due on mortgages until the loan is 180 days past due. The manager is obligated to make advance payments for taxes, insurance premiums and reasonable costs incurred in the course of managing and disposing of the property.
From the two-year anniversary of the Closing Date, the depositor has the option to purchase all outstanding Certificates at a price equal to the outstanding Class Balance plus accrued and unpaid interest, including any remaining limits. Following such a purchase, the depositor has the option of conducting a “qualified liquidation” which requires a complete liquidation of the assets within the fund and the distribution of proceeds to appropriate regular or residual unit holders.
The transaction uses a sequential payment cash flow structure with a proportional distribution of principal amount to principal tranches. Principal income may be used to cover the shortfall in interest on the Certificates once outstanding Senior Certificates are paid in full. In addition, excess margin may be used to initially cover realized losses before being allocated to compound unpaid amounts remaining up to Class B-2.
The ratings reflect the strengths of the transaction, including the following:
(1) Improved Underwriting Standards: Whether for prime or non-prime mortgages, underwriting standards have evolved since the pre-crisis era with respect to certain attributes such as income, assets and employment verification, as well as valuation and reserve requirements. All mortgage loans (except investor cash flow, investment property and overseas) have been underwritten in accordance with the eight underwriting factors of the ATR Rules, although they may not necessarily comply with Schedule Q of Regulation Z.
(2) Robust credit attributes and group composition:
-- Mortgage loans in this portfolio generally have strong lending attributes, as reflected in combined loan-to-value (LTV) ratios, borrowers' household income, and cash reserves, including loans in non-priority programs with weaker borrower credit quality.
-- LTV ratios gradually decline as programs move up the credit spectrum, suggesting that offsetting factors are being considered for high-risk groups.
-- The pool consists of 65.4% variable rate hybrid mortgages with an initial fixed term of five to 10 years, giving borrowers ample time to service loans before interest rates reverse. The remaining 34.6% of the pool consists of fixed rate mortgages, which typically have the lowest risk of default due to stable monthly payments.
(3) Satisfactory third-party due diligence: Third-party due diligence firms performed property appraisals and credit reviews on 100% of loans in the pool. External due diligence firms performed regulatory compliance reviews on 92.4% of loans (i.e. the entire group, excluding 89 investor cash flow loans). Data integrity checks were also performed on the pool.
(4) Strong servicer: SPS, a strong residential mortgage servicer and wholly owned subsidiary of Credit Suisse AG (DBRS “A” rating with stable trend), services all loans (100.0%) in the group. In this transaction, SPS assumes the financing of advances to the extent necessary. In addition, the transaction employs Wells Fargo as a core service. If the Administrator fails to meet its obligation to pay advances of principal and interest, Wells Fargo is obligated to fund such advances.
(5) Current loans and faster prepayments: Angel Oak began originating off-branch loans in the fourth quarter of 2013. Since the initial transaction in December 2015, voluntary prepayment rates have been relatively high as these borrowers tend to recover and refinance at lower levels. - mortgage costs. Likewise, the AOMT 2019-3 Portfolio Loans have been in effect since their issuance.
The transaction also includes the following challenges and mitigating factors:
(1) Although slightly stronger than comparable DBRS-rated non-QM transactions, the Representations and Warranties (R&W) framework for AOMT 2019-3 is weaker than the framework for post-crisis prime securitizations. Instead of an automatic review when a loan is seriously delinquent, this transaction uses a mandatory review for less immediate triggers. In addition, R&W providers are unrated entities, have limited track record in non-QM securitizations and may face financial strains that may prevent them from meeting repurchase obligations. DBRS observes the following mitigating factors:
-- 100% of pooled loans had satisfactory third-party due diligence for credit quality, property valuation and data integrity. A regulatory compliance review was performed on all but 89 investor cash flow loans. Thorough due diligence mitigates the risk of future R&W violations.
-- An independent R&W auditor, Covius Real Estate Services, LLC, will be appointed in the transaction to review loans for alleged R&W defaults.
-- DBRS has verified the originator of AOHL and AOMS on site and finds the mortgage companies acceptable.
-- The sponsor, an affiliate of Angel Oak, retains an allowable vertical interest in at least 5% of the certificates in each class, thereby balancing the sponsor's and investor's interests in the capital structure.
-- Notwithstanding the foregoing, DBRS has downgraded the seller's ratings to reflect potential inability to meet repurchase commitments, poor track record and weakened R&W structure. A lower originator score leads to more default and loss events and provides additional protection for rated securities.
(2) Non-Prime, QM or Non-QM Loans with Rebuttable Presumption: Compared to post-crisis prime transactions, this portfolio includes mortgages made to borrowers with weaker credit ratings or past adverse credit events, as well as QM or Non-QM with rebuttable presumption loans. QM Loan. In addition, some loans were valued using 24-month tested income statements (7.1%), 12-month tested income statements (54.3%), assets rather than income test (0.3%) or as investor cash flow Loans (7.3%). DBRS observes the following mitigating factors:
-- All loans subject to the ATR rules were originated to meet the eight required underwriting factors.
-- Underwriting standards have improved significantly since before the crisis.
-- Statements of accounts such as income, investor cash flow, and asset loans are treated as incomplete documentation in the RMBS Insight model, increasing expected losses on these loans.
-- The RMBS Insight template incorporates the severity of loss penalties for non-QM loans and rebuttable QM assumptions, as detailed in the Key Factors That Determine Loss Severity section of the associated report.
-- For loans in this portfolio originating under the Non-Prime General and Non-Prime Recent Housing Event programs, the borrower's credit events typically occurred 39 months and 12 months before the maturity date, respectively. In its analysis, the DBRS applies additional penalties to borrowers with recent credit events within the past two years.
(3) Geographic Concentration: Compared to other recent securitizations, the 2019-3 AOMT pool has a high loan concentration in Florida (25.1% of the pool). Mitigating factors include:
-- Although the group is focused on Florida, lending is well distributed across Metropolitan Statistical Areas (MSA). Florida's largest MSA, Fort Lauderdale-Pompano Beach-Deerfield Beach, accounts for just 5.5% of the entire transaction. DBRS does not believe that the AOMT 2019-3 group is particularly sensitive to a deterioration in economic conditions or the occurrence of a natural disaster in any particular region.
-- The DBRS RMBS Insight Model generates high asset correlation for this portfolio, driven by loan size and geographic concentration, resulting in higher expected losses across all rating categories.
(4) Advances of Principal and Interest Due by Administrator: The Affiliate Administrator will advance principal and scheduled interest on overdue mortgages until loans are 180 days past due or until advances are deemed uncollectible. This is likely to result in less loss severity for the transaction, as the principal and interest advanced will not have to be repaid by the fund at the time the mortgages are paid off, but will increase the possibility of periodic default by holders. of certificates. Mitigating factors include the fact that (a) equity proceeds may be used to pay interest losses on the Notes as the outstanding Senior Notes are paid in full and (b) the subordination is greater than the losses expected, which means the payment of Interest on which you can afford certificates. DBRS ran cash flow scenarios that included principal and interest advances of up to 180 days on non-performing loans; Cash flow scenarios are discussed in more detail in the Cash Flow Analysis section of the related report.
DBRS ratings of AAA (sf) and AA (sf) refer to timely payment of interest and full repayment of principal before the Legal Final Maturity Date, in accordance with the terms of the relevant Certificates. DBRS ratings of A(sf), BBB(sf), BB(sf) and B(sf) refer to final payment of interest and principal in full on the last legal due date under the relevant Certificates.
For a complete description of strengths, challenges and mitigating factors, please see the associated report.
All amounts are in US Dollars unless otherwise noted.
The main methodology is RMBS Insight 1.3: U.S. Residential mortgage-backed securities model and rating methodology, found indbrs.comunder methods and criteria.
The ranked company or companies affiliated with it participated in the ranking process for this ranking measure. DBRS had access to the accounts and other relevant internal documents of the rated entity or its affiliates in connection with this rating action.
More information on the sensitivity of the assumptions used in the rating process can be found in the respective appendix.
The full report with additional analytical details is available by clicking the link below under Related Research or by contacting us via firstname.lastname@example.org.
For more information about this loan or sector, visitwww.dbrs.comor contact us email@example.com.
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- Angel Oak Mortgage Trust 2019-3: Qualifikationsbericht
- Angel Oak Mortgage Trust 2019-3 - DBRS 17g-7 Disclosure Report
- Angel Oak Mortgage Trust 2019-3 - Appendix: Sensitivity Analysis
- Angel Oak Mortgage Trust 2019-3- Formulário ABS Due Diligence - 15E (AMC)
- Angel Oak Mortgage Trust 2019-3 - Formulario ABS Due Diligence - 15E (Clayton)