Angel Oak Mortgage sharpens focus on non-QM

The company seeks to "reposition portfolio, improve liquidity, and protect capital structure"

Angel Oak Mortgage sharpens focus on non-QM

After suffering losses in the third quarter, non-QM lender Angel Oak Mortgage (AOM) has “repositioned” its mark-to-market loan portfolio, a move that the company said will protect its capital from the tumultuous securitization market.

Angel Oak announced this week that it converted roughly $286 million of mark-to-market debt to non-mark-to-market financing for all continually performing loans as part of the company’s strategic plan outlined in its Q3 2022 earnings call held last month.

In the call, AOM chief financial officer Brandon Filson explained that the company faced unrealized mark-to-market losses on its securitized loan portfolios, resulting in a 12.3% decrease in net interest margin.

“We observed an extremely volatile and uncertain fixed income market in the second quarter as the Fed continued to increase interest rates, exerting downward pricing pressure on our mark-to-market assets,” Angel Oak Mortgage CEO Robert Williams added. “This impact was partially offset by our interest rate hedging strategy.”

According to Angel Oak, the financing conversion combined with its previously announced loan sale will have reduced the company’s outstanding warehouse debt by nearly 30%, decreased its mark-to-market percentage of total warehouse debt by over 40%, released approximately $35 million of additional capital and liquidity, and increased the weighted average coupon of its remaining residential whole loan portfolio by about 10 basis points.

William said AOM will stick to its non-QM strategy of securitizing “high-quality” non-QM loans that “locks in long-term financing and net interest margin while reducing liquidity risk.”

“We are pleased with these positive developments in our strategic plan to reposition our portfolio, improve liquidity, reduce risk, and protect our capital structure,” said Sreeni Prabhu, chief investment officer and co-CEO of Angel Oak Companies. “Going forward, we plan to leverage the distinct competitive advantage provided by our affiliated non-QM mortgage origination platform by increasing purchases of high-yielding loans while preparing for an expected return to the securitization market. This has historically generated attractive risk-adjusted returns, which we believe will enable us to maximize shareholder value.”

As of November 30, Angel Oak estimates its GAAP book value was between $9.35 and $9.45 per share of common stock. Its economic book value, which measures all securitization obligations at fair value, is estimated to range between $12.70 and $12.80 per share of common stock.

What are your thoughts on Angel Oak’s strategic plan and the state of the non-QM securitization market? Let us know in the comments below.