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HomeNational MortgageAngel Oak posts third consecutive quarterly loss amid non-QM headwinds

Angel Oak posts third consecutive quarterly loss amid non-QM headwinds

Actual property funding belief Angel Oak Mortgage reported a third-straight quarterly loss as a turbulent non-QM surroundings raises industry-wide issues about liquidity and loan-portfolio values.  

The Atlanta-based purchaser and investor of first-lien non-QM mortgages misplaced $83.3 million, or $3.40 per diluted share, for the quarter ending Sept. 30, representing a decline of just about 60% from its internet lack of $52.1 million posted three months earlier. In the identical time interval of 2021, Angel Oak had squeezed out a revenue of $6.3 million in its first full quarter as a publicly traded firm.

“Given the present market, AOMR shifted to a extra defensive technique in Q3, managing liquidity whereas defending our capital construction in order that we’re able to develop as soon as markets and financial exercise stabilize,” Angel Oak Mortgage CEO and President Sreeni Prabhu stated in the course of the firm’s earnings name. 

“We bought fewer loans than in earlier quarters,” Prabhu stated in his first earnings announcement as chief of Angel Oak Firms’ REIT operation for the reason that ouster of Robert Williams in September

Whereas market circumstances have impacted the whole mortgage {industry} in 2022, the burden of rate of interest volatility and tightening credit score has left an acute mark within the non-QM house, inflicting higher uncertainty about valuation of loans by secondary market traders. It additionally has pressured a number of corporations specializing in non-QM to shut completely, together with First Warranty, Sprout Mortgage and Athas Capital.

However as one among a number of corporations throughout the higher Angel Oak holding firm that additionally consists of Angel Oak Capital Advisors, the REIT entered the present down cycle “in a a lot better place,” Prabhu stated.

“Clearly, we at all times have the partnership with the asset supervisor, which helps increase the cash, as we at all times stated that we aren’t an originate-to-sell mannequin. We originate to personal credit score,” he stated.

However {industry} headwinds are additionally not leaving lending operations throughout the Angel Oak household of companies, comparable to non-QM wholesale originator Angel Oak Mortgage Options and retail operator Angel Oak Dwelling Loans, unscathed both, inflicting a trickle-down impact to the REIT’s backside line. Each lenders are amongst dozens which have reported layoffs inside the previous few months.

“Identical to every other mortgage firm, we needed to shrink workforce over there, shrink what we do, however our deal with non-QM has not shifted,” Prabhu stated. 

“The mortgage REIT must be prudent on the way it deploys money in an surroundings the place the charges are going up quick and livid. And so we tactfully slowed down originations within the mortgage firm, as a result of we needed to protect the money in our funds together with the REIT,” he stated.

Obtainable liquidity amid the present slowdown has additionally develop into a rising supply of concern, however Chief Monetary Officer Brandon Filson affirmed the corporate “remained dedicated to a sound liquidity-management technique.” Whereas focusing on to get securitizations out repeatedly, Filson stated a possible sale of loans was additionally on the desk as a part of a two-pronged technique.

“We’re taking a look at promoting a portion of the loans to maneuver forward and that will release a whole lot of liquidity that we are able to simply flip into considerably increased coupons as quickly as that is accomplished,” Filson stated.

“What we need to do is optimize our stability sheet for liquidity and in addition to play some offense,” Prabhu added. 

“We do not need to hand over all that optionality by simply promoting the loans as a result of we need to retain them [to be placed] right into a securitization, which I consider is our greatest execution. However we’ll have a look at every little thing and optimize it over this quarter.”

Angel Oak completed the third quarter with undrawn mortgage financing capability of $695 million. Its general complete present capability stands at $1.4 million, Filson stated, and consists of services with six establishments. Filson additionally stated the corporate plans to guage new services.

After deciding to not securitize mortgages within the second quarter as a consequence of heightened fee volatility, the corporate issued a securitization in July, which included 407 loans at a weighted common coupon of 5.22%, a mean credit score rating of 730, loan-to-value mark of  75.1% and a debt-to-income ratio of 32.1%.

Of the few loans Angel Oak bought in the course of the third quarter, Prabhu stated the common coupon fee was over 7%, whereas current locks got here in over 8.5% at one of many REIT’s sister mortgage corporations. 

“Over the approaching quarters, we plan to reposition our portfolio to be extra reflective of those present charges and to renew our methodical course of of buying and securitizing newly originated high-coupon loans,” Prabhu stated.

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