Non-QM loans with prime characteristics secure MFA 2022-NQM2 Trust


A pool of first-lien, interest-only residential mortgage loans financing a range of residences will secure $540.6 million in mortgage-backed securities (MBS), in a deal coming from MFA 2022-NQM2 Trust.

MFA Financial is the sponsor and administrator on the transaction, which will contain 709 non-prime loans that have an average balance of $762,562. The deal will issue notes through a senior-subordinate structure, according to S&P Global Ratings and DBRS | Morningstar. The deal has a closing date of May 27, 2022.

As its name indicates, loans that were originated to satisfy Ability-to-Repay (ATR) rules from the Consumer Financial Protection Bureau (CFPB) secure MFA 2022-NQM2. Full documentation underwriting accounted for only a small percentage of the pool balance, some 17.4%. Bank statements account for 46.2%, and debt-service coverage ratio, about 26%, according to DBRS.

Despite the non-QM nature of the collateral, borrowers of the underlying loans had significant prime-quality characteristics. All borrowers had annual incomes of $686,930, and liquid reserves of $443,907. They had high levels of home equity, as indicated by the weighted average (WA) original cumulative loan-to-value (LTV) of 69.2%, according to DBRS. Mortgage holders had WA FICO scores of 737, and a debt-to-income ratio of 31.9%.

About 61.1% of the borrowers in the pool were self-employed.

Fundloans Capital originated most loans in the pool, about 63.2%. Other originators in the pool, Citadel Servicing and Acra Lending account for 17.8% and 19% of originations, respectively. The fixed- and adjustable-rate mortgages have five months of seasoning, with remaining terms ranging from zero to 63 months, according to DBRS.

The deal’s capital structure will issue fixed-rate notes through three senior notes, classes A-1 through A-3, repaying noteholders on a pro rate basis; a class M-1 mezzanine piece; and three subordinate classes, B-1 through B-3, according to DBRS. The rating agency expects to assign ratings of ‘AAA’ on the most senior class, which expects to issue $355.2 million in notes, to ‘A’ on the $62.4 million, A-3 class. Further, it expects to assign ‘BBB’ through ‘B’ on the mezzanine through B-2 classes. DBRS said it will not rate the class B-3 notes.

S&P expects to assign similar ratings to the notes, except the rating agency plans to assign ‘BB-’ and ‘B-’ to the B-1 and B-2 notes.

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