Social first
Angel Oak Capital Advisors in May set the template for social bonds in the private-label US dollar mortgage market. It successfully placed paper – via Angel Oak Mortgage Trust 2021-2 – that financed US$232m in loans to non-traditional borrowers who do not qualify for mortgages guaranteed by federal agencies Fannie Mae and Freddie Mac.
Angel Oak provides mortgages to potential homeowners who are self-employed, need down payment assistance and fall in the low-to-moderate income categories.
In May it stepped up its ESG commitment by adhering to principles outlined by the United Nations and providing annual disclosure on the metrics of its social bond programme.
"We took a hard look at what we were doing on the lending side, and thought about how are we serving our communities and providing access to credits to segments of the population that are under-served," Angel Oak's head of client solutions Manish Valecha said.
The four-part deal carried a weighted-average life of 2.24 years. It fetched a weighted-average spread of 79bp over swaps and a weighted-average yield of 1.131%. Deutsche Bank and Barclays were joint bookrunners and its social impact features were reviewed by ESG ratings firm ISS.
Despite being the inaugural social RMBS, the deal drew a multiple times covered book, resulting in three of the four tranches pricing 5bp inside the tight end of guidance.
Two months later, Angel Oak delivered a follow-up social bond, the US$292m Angel Oak Mortgage Trust 2021-3.
“Social impact investing within securitisation is on a growth trajectory,” SLC Management senior portfolio manager Daniel Lucey said.
The emergence of social bonds from private lenders adds to existing programmes administered by Fannie and Freddie to help under-served communities. They arrived at a time these borrowers faced hardship due to the coronavirus pandemic and the subsequent impact of rising rents and home prices amid tight housing supply.
Bank of America analysts tagged AOMT 2021-2 as a template for other RMBS deals from sectors such as single-family rental, reverse mortgages and credit-risk transfers. “We think the social bond governance consideration will be highly applicable to low-income tenants,” the analysts said of the deal.
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