Private-label mortgage bonds are rising from the grave

Remember the sliced and diced mortgage-backed bonds that brought down the U.S. Economy? They’re back, but their makers say they are nothing like the former bonds, not even close. The mortgages backed by these new bonds exist outside the strict guidelines of government-backed securitizations, and the borrowers do have some dings on their credit reports, but these loans are fully underwritten, require significant down payments and come fully documented. mAngel Oak Capital Advisors announced its first rated securitization of nonagency residential mortgages this week; the $148 million securitization was rated AAA by the Fitch and DBRS ratings agencies. The deal is backed by loans that fall outside the guidelines for government securitization, so-called nonqualified mortgages. Borrowers may have gone through foreclosure in the past or have some other red flag on their credit report. The nonqualified mortgages market is slowly coming back to life after shrinking to next to nothing since the recession. This is Angel Oak’s third securitization since 2015, and all three are backed by loans originated through the firm’s two affiliated mortgage lenders. A few others have gotten back into this market but mostly with older, subprime loans that have been bundled together. These are newer loans from one entity. That helped in selling the idea to investors. Private label mortgage-backed securities doubled in dollar volume from 2003 to 2006 as home prices surged and pretty much anyone with a pulse could get a loan. At their peak in 2006, they accounted for almost 60 percent of the securitized mortgage market, with a dollar value of $1.2 trillion, according to Inside Mortgage Finance. In a low interest rate environment there was no way to price the securities high enough to get any investor attention.”