OBX 2021-J3 Prepares $ 453.6 Million MBS

The OBX 2021-J3 Trust is preparing to issue a series of mortgage-backed securities backed by high-quality real estate loans to qualified borrowers, in a deal expected to close on October 8.

With a principal balance of approximately $ 453.6 million, the collateral pool includes approximately 465 senior, fixed-rate and senior residential mortgages, according to DBRS Morningstar, which plans to rate the notes issued.

Some of the credit virtues of secured loans include low loan-to-value ratios, strong borrower credit, and complete documentation on virtually all loans. OBX 2021’s capital structure uses a higher subordinated, shifting interest cash flow structure that has improved over pre-crisis methods.

None of the underlying OBX 2021 loans had benefited from forbearance plans due to borrowers reporting financial hardship amid the COVID-19 pandemic.

The underlying borrowers are largely well qualified and are categorized as qualified mortgages, Safe Harbor loans under quality management and repayment capacity, according to DBRS. On average, borrowers have loan balances of approximately $ 975,000, with a Weighted Average Coupon (WA) of 3%. In terms of credit qualifications, the borrowers in the pool have a weighted average FICO score of 775. The cumulative LTV of the other borrowers was 64%, and they had a WA debt-to-income ratio of 30%.

Although OBX 2021 is structured on a solid foundation, with strong guarantees, the deal still has a number of credit issues and mitigating factors, noted DBRS, starting with its representation and guarantee framework (R&W ). MADEX as an aggregator and Onslow Bay Financial are listed R&W providers, but are not rated for this capability, DBRS said.

MADEX Clearing LLC, acquired about 6.3% of the pool’s loans, while Onslow Bay Financial, LLC, acted as the seller of home loans in the deal, according to DBRS.

Another unrated entity that poses a potential challenge to the transaction is Shellpoint Mortgage Servicing, the manager of the transaction. DBRS recognizes that SMS is operationally sound, but remains concerned about its ability to face possible financial difficulties in the future. Wells Fargo is on board as a maintenance master, offsetting some of that concern.

DBRS also noted that some of the entities involved in the transaction are not financially strong enough and lack experience in securitizing prime mortgages. If they fail to meet R&W obligations, they may not be able to meet their redemption obligations.

DBRS expects to assign “AAA” ratings to a substantial majority of the Notes it will price, ranging from Class A-6 at $ 289.2 million to Class AX-22 at $ 47.6 million. More subordinate classes are likely to be rated “AA” through “B”.