OBX preparing a May MBS windfall through prime jumbo, non-prime deals

Onslow Bay is opening the month of May with massive residential mortgage-backed securities (RMBS) issuances on two separate credit tracks. Its OBX 2022-J1 Trust (OBX 2022-J1) deal will fund about $393.3 million in prime jumbo mortgages, while the OBX 2022-NQM4 will raise $457.2 million in RMBS to support non-prime slice of the credit spectrum.

Investors will have a first crack at the higher credit quality assets first, as OBX 2022-J1, is slated to close on May 4. Some 451 jumbo mortgages collateralized that deal, wherein the pool consists of 93% non-conforming and 7% conforming home loans, according to Moody’s Investors Service, which has assigned preliminary ratings ranging from ‘AAA’ on the senior and super senior tranches and ‘Aa3’ and ‘A2’ on the subordinate notes. All of those notes are exchangeable. Moody’s also said it expects to assign ‘Baa2’ to ‘B2’ ratings on the subordinate certificates.

OBX purchased the loans from Bank of America, whose affiliated entity, Bank of America Merrill Lynch, had served as structuring lead on the OBX 2021-J3 transaction, which had issued about $433.2 million in prime jumbo RMBS.

Aside from issuing the notes from a senior-subordinate payout structure, the super senior notes will benefit from initial credit enhancement of 15.0%, and the senior support bonds have initial support of 5.0%. Also, the senior structure provides a senior credit enhancement floor of 1.25%.

Among the deal’s credit strengths is the typical borrower profile. On a weighted average (WA) basis, the primary borrower has a credit score of 776, and the original WA cumulative loan-to-value (CLTV) ratio is 65.1%. The collateral pool has not interest-only loans.

As for the OBX 2022-NQM4 deal, Morgan Stanley & Co., Barclays Capital and BMO Capital Markets are initial note purchasers, according to Kroll Bond Rating Agency.

That transaction, expected to close on May 10, will issue notes supported by payments on 704 first-lien mortgages. Most of the home loans, 67.5%, are owner-occupied, while 28.9% are investment properties, KBRA said.

By pool balance, some 41.9% of the loans were underwritten relying on bank statements as part of the due diligence process, while about 21.0% were underwritten on full doc methods, and 18.8% were DSCR-underwritten, using the ratio of the property’s expected rental income to property-related debt and expenses.

On average, the loans have an average balance of $649,553. The aggregate top five balances in the transaction account for 3.3% of the pool balance, according to KBRA.

Like the deal from the OBX sister platform, the NQM4 transaction will repay investors through a sequential structure, with excess spread and a 120-day stop advance providing some credit support.

The borrower credit profiles were slightly lower than that of the jumbo loan pool, with a weighted average (WA) credit score of 745, and an original loan-to-value ratio of 70.0%. Half of the borrowers in the pool are self-employed, with a non-zero WA annual income level of $531,769, and a WA debt-to-income (DTI) ratio of 36.9%.

Mortgages originated on homes in California accounts for a majority of the pool balance, 52.7%, and Los Angeles accounts for the metro area with the largest concentration of loans in the pool, 30.1%.

Select Portfolio Servicing will provide 86.4% of the pool balance. KBRA expects to assign ratings ranging from ‘AAA’ on the A-1A super senior notes to ‘A’ on the senior sequential A3 notes; ‘BBB’ on the mezzanine M-1 notes, and ‘BB-’ and ‘B-’ on the subordinate B-2 notes.