Preliminary Credit Ratings Assigned to Angel Oak Mortgage Trust 2025-3: A Deep Dive
New York, NY — In a recent business wire announcement, Kroll Bond Rating Agency (KBRA) assigned preliminary ratings to seven classes of mortgage-backed certificates from Angel Oak Mortgage Trust 2025-3 (AOMT 2025-3). This $333.3 million non-prime Residential Mortgage-Backed Securities (RMBS) transaction includes 645 residential mortgages with unique characteristics.
Underlying Collateral: A Concentration of Alternative Documentation Loans
The underlying collateral for AOMT 2025-3 is marked by a substantial concentration of loans underwritten using alternative income documentation. These loans, which account for 57.7% of the total, do not comply with the standard requirements for qualification under the Ability-to-Repay/Qualified Mortgage (QM) rule. The remaining 42.3% of the loans are exempt from the rule.
Impact on Individual Consumers
For individual consumers, the assignment of preliminary ratings to AOMT 2025-3 may not have an immediate impact. However, it is essential to understand that non-QM loans typically come with higher interest rates and more stringent borrower requirements compared to QM loans. This can make it more challenging for some borrowers to secure financing for their home purchases or refinancing.
- Higher interest rates: Non-QM loans often have higher interest rates due to the increased risk profile of the borrowers and the lack of standardized underwriting criteria.
- Stricter borrower requirements: Lenders may require more extensive documentation and proof of income, assets, and employment to qualify for a non-QM loan.
Global Implications
The impact of the preliminary ratings assigned to AOMT 2025-3 extends beyond individual consumers. This transaction represents a growing trend in the mortgage market, as alternative documentation loans continue to gain popularity. This shift could have significant implications for the global financial system:
- Increased risk: The growing popularity of non-QM loans could lead to increased risk in the mortgage market, as these loans often come with higher default rates compared to QM loans.
- Regulatory scrutiny: Regulators may increase their scrutiny of non-QM loans and the lenders issuing them, as concerns about the potential risks to the financial system grow.
Conclusion
The preliminary ratings assigned to Angel Oak Mortgage Trust 2025-3 mark a significant development in the mortgage market, as the transaction represents a substantial concentration of non-QM loans. While individual consumers may not feel the immediate impact, the long-term implications for the financial system are worth considering. As the mortgage market continues to evolve, it is essential to stay informed about trends and developments that could impact your financial wellbeing.
Stay tuned for more insights and analysis on the mortgage market and related topics. Until then, happy exploring!
