Securitization reflects rising interest in alternative lending
A&D Mortgage has successfully executed its fourth non-QM securitization transaction of the year, valued at $331.5 million.
The transaction features a $209.6 million two-year senior note that secured a Triple A rating from Kroll Bond Rating Agency (KBRA) and was priced at 145 basis points over Treasuries.
The non-prime Residential Mortgage-Backed Securities (RMBS) transaction, known as ADMT 2024-NQM4 Trust, is backed by 1,055 residential mortgages. The collateral includes a significant portion of loans underwritten with alternative income documentation.
The borrowers in the pool have a non-zero weighted average original credit score of 740 and demonstrate substantial equity in their properties, with a weighted average combined loan-to-value (CLTV) ratio of 70.7%.
The loans are secured by various property types, including single-family residential properties, planned unit developments, condominiums, town homes, two- to four-family residential properties, condotels, mixed-use properties, manufactured housing, and five- to 10-unit multifamily residences.
The pool consists of 1,055 loans, which include qualified mortgage (QM) safe harbor, QM rebuttable presumption, ability to repay-exempt loans, and non-QM/ability to repay-compliant loans.
The non-QM segment of the mortgage market is expected to continue growing, according to Angel Oak Mortgage Solutions president Tom Hutchens.
He noted that a large number of originators have entered the non-QM space in recent years, indicating growing interest in this market segment.
The increasing participation of originators in the non-QM market is expected to drive further growth and innovation in the sector. As more lenders become familiar with the non-QM landscape, they are likely to expand their offerings and provide more options for borrowers who do not meet traditional credit requirements.
Read more: Non-QM 'is here to stay': lender president
“That’s not going to change with the rates pulling back a little bit,” Hutchens said in a recent interview with Mortgage Professional America. “Having learned how to successfully close a couple of non-QM loans, they’re not going to, all of a sudden, stop doing that. They’re going to continue, so I’m excited about that.”
The RMBS transaction also reflects a broader economic outlook. According to recent updates from S&P Global Ratings, the US economy is expected to experience rate cuts of 50 basis points this year and an additional 100 basis points next year, as the labor market normalizes.
Despite the evolving economic conditions, the outlook for the mortgage and housing markets remains stable, with a projected archetypal foreclosure frequency of 2.50%.
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