Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to six classes of mortgage pass-through certificates from Angel Oak Mortgage Trust 2021 (AOMT 2021-2), a $231.5 million non-prime RMBS transaction. The underlying collateral, comprising 466 residential mortgages, is characterized by a notable concentration of alternative income documentation, with approximately 92.8% of the loans underwritten using 12-month or 24-month bank statements.
Angel Oak has had ESG initiatives underway since 2019, and in early 2021 Angel Oak Capital Advisors (AOCA) implemented a Social Bond Framework (SBF). In conjunction with the SBF, AOCA intends to use proceeds generated by its RMBS securitizations to finance residential loans for underserved borrowers. AOMT 2021-2 is the first RMBS transaction KBRA has rated where the sponsor or an affiliated entity has implemented and tested a SBF and has committed to provide public annual reports which would include metrics relating to social impacts from its Social Bond issuances. KBRA notes that AOCA’s SBF puts focus on the impact that credit availability for underserved borrowers can have on ‘Social’ considerations within a broader ESG framework.
It should be noted that lending programs which expand credit availability to non-prime borrowers can generally do so with trade-offs in regard to credit risk. These higher risk attributes are incorporated into KBRA’s analysis of AOMT 2021-2 in the same manner as for all non-prime and non-QM transactions rated by KBRA, and the existence of the SBF does not, in itself, have an impact on KBRA’s loss estimates.
KBRA’s rating approach incorporated loan-level analysis of the mortgage pool through its U.S. RMBS Mortgage Default and Loss Model, an examination of the results from third-party loan file due diligence, cash flow modeling analysis of the transaction’s payment structure, reviews of key transaction parties and an assessment of the transaction’s legal structure and documentation. This analysis is further described in our U.S. RMBS Rating Methodology.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority pursuant to the Temporary Registration Regime. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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