A new arrival in Santa Barbara’s home mortgage ranks, so new it has yet to tack a sign on the door, Angel Oak Home Loans landed in August to “disrupt industry in a positive way,” as CEO Steven Schwalb has put it. The lender offers home loans to people who usually have trouble qualifying for mortgages for credit reasons, aka non-qualified mortgages. Parent company Angel Oak Capital, a hedge fund started in 2008 by Mike Fierman and Sreeni Prabhu, recently issued $132.65 million in securities mostly based on non-qualified mortgages, usually abbreviated to non-QM, which “represents the firm’s commitment to revitalizing the non-QM mortgage market, which has been dormant for nearly eight years.”
The Atlanta company’s home loan division brought in many of the loans in the securities offering, but it also sells its mortgages to banks and government agencies like Fannie Mae, explained Richard Staley, the company’s chief production officer. New offices in Houston’s Woodlands and Nashville’s Cool Springs, as well as Santa Barbara, brings the division’s total branches to 16 nationwide. The company’s four divisions — retail and wholesale mortgage, equity, investment — amount to about $6 billion in assets, Staley said.
As well as traditional mortgages, the Home Loan division concentrates on loans to people who have declared bankruptcy in the past, are self-employed with tax returns that don’t show a profit, or have had a short sale, divorce, or other “event” that has damaged their credit, said Staley. Customers can have “good jobs, money in the bank, and great credit scores,” he continued, but still be unable to get a traditional loan. He estimated about 7 million Americans fit that category.
“Our average loan has a 78 percent loan-to-value ratio, or 22 percent down payment” on the house, he estimated. His average customer has a 680 credit score, and the company requires a documented debt-to income ratio of about 38 percent. He said Angel Oak adheres to the “Ability to Pay” rule issued by its regulator – the Consumer Finance Protection Agency. Mortgage rates depend on credit factors and down payment, Staley said, but are in the low 5s to high 6s, as compared to 3.5 percent for a “vanilla” loan.
“If you look at our profile,” Staley commented, “our performance is through the roof. We have very little issue with late payments or defaults.” He said the difference between non-QM loans and subprime loans of the Great Recession was the ability to pay. “In the old days, they never checked the ability to repay,” said Staley. “That’s how you got nurses in Florida with million-dollar condos.”
Editor’s Note: This story was revised on October 4 to correct the date Angel Oak Capital formed and to indicate its Home Loan division offers traditional and non-QM loans.