A&D Mortgage Trust to issue $401.5 million in non-QM MBS

Non-qualified mortgage lender A&D Mortgage Trust is returning to issue $401.5 million in mortgage-backed securities to investors, with most of the notes either funded by repayments on non-QM loans and those that are not subject to the Consumer Finance Protection Bureau (CFPB’s) ability-to-repay rule.

The mortgages underpinning the deal, which is slated to close this week, are newly originated, primarily, and fixed rate, according to ratings analysts at Fitch Ratings, Analysts and at Kroll Bond Rating Agency (KBRA). So all in all some 88.9% of the 1,084 mortgages that make up the underlying collateral used alternative income documentation in its underwriting process, according to KBRA.

Fitch points out that investment properties account for 45% of the mortgages in the pool. Also, 14% of the loans were underwritten using the borrower’s credit profile while A&D Mortgage originated 30.9% of them through its investor cashflow program. This program targets real estate investors qualified using a debt-service coverage ratio calculation. The pool also includes 69 closed-end, second-lien loans. While that accounts for only 3.9% of the pool, Fitch applied a 100% loss severity estimate to them, due to their lower position in the mortgage credit scheme.

Nomura Securities International is lead underwriter on the transaction, which has several credit-positive aspects, however. Fitch gives A&D Mortgage an acceptable rating and says its outlook on the company as a servicer of the underlying mortgages is stable. Nationstar is on the deal as master servicer, and Fitch has a stable outlook on that company, too.

ADMT 2024-NQM2 will repay senior position investors on a pro-rata basis, while the mezzanine and subordinate notes will be repaid sequentially. The notes benefit from several mechanisms to bolster its credit, including subordination, excess spread and a reserve account, ratings analysts said. The notes benefit from enhancements ranging from 30.65% on the A1 notes to 1.45% on the B3 notes. Class X notes will repay based on monthly excess cashflow.

On a weighted average (WA) basis, the underlying loans have an original credit score of 731, and on average the loans have a balance of $370,386. The loans also have original terms of 361 months, on a WA basis. Single-family homes and planned urban developments make up most of the pool, while condominiums account for 14.8%, and multifamily properties account for 8.0%, KBRA said.

KBRA intends to assign ratings of ¬AAA to the A1 notes; AA+ to the A2 notes; A+ to the A3 notes; BBB+ to the M1 notes; BB- to the B1 notes and B- to the B2 notes. Moody’s, meanwhile, assigns ratings ranging from AAA on the A1 notes through BBB- on the M1 notes.

The notes have a legal final maturity of April 2069, Moody’s said.