@Angel Oak Capital.
Asset-based investing has seen significant interest in recent months, with private credit managers, insurance companies, and other investors looking for the “new frontier” away from corporate private credit and focusing on areas with contractual cash flows and hard assets. The Angel Oak platform that allows investors to participate in securitisations and own mortgages in whole loan form is a leader in providing investors access to this growing asset class.
Credit performance in the Non-Agency residential mortgage sector has been noteworthy post-Great Financial Crisis (GFC). In this paper, we do a deeper dive into credit performance in the sector and highlight Angel Oak’s performance.
Key Takeaways from Whitepaper:
• The Non-Agency borrower base continues to expand, with record growth in small business formation providing a tailwind for investors with an imbalance of credit availability relative to the borrower base.
• Delinquencies for Non-Agency residential mortgages relative to other sectors, including autos, corporates, and commercial real estate, continue to be low. The percentage of borrowers in foreclosure remains just 1% of the current outstanding balance of mortgages in the Non-QM sector.
• Angel Oak’s performance relative to the competition stands out with lower delinquencies as shown in this report. The ability to source mortgages through a leading affiliate wholesale originator and third parties allows Angel Oak to build carefully curated diversified portfolios. A sourcing advantage for the firm is coupled with industry-leading proprietary analytics in order to minimise delinquencies.
Residential Mortgages: A Safe Haven
As delinquencies have increased in the past three years across areas of credit including high-yield corporates, commercial real estate, and the consumer credit markets including autos, the residential mortgage market has stood out as a top performer.
The 60+ day delinquency rate on Non-QM has increased to approximately 3%, whereas other areas of credit — such as subprime auto, which has increased to almost 8%; SASB CMBS at 4.3%; and conduit CMBS at 5.6% — have seen delinquencies accelerate much more sharply in 2024. According to Fitch, the 12-month leveraged loan default rate was 4.47% in August 2024.
Tightening credit conditions have led to an increase in delinquencies across a range of credit sectors, with arguably the worst yet to come in areas such as commercial real estate, where developers are holding out hope for swift Fed rate cuts.
So, what’s the secret behind the relative outperformance of Non-QM or Non-Agency mortgage credit?
