A portfolio of fixed and adjustable rate, extended prime and non-prime residential first mortgages will secure an issuance of $459.5 million of mortgage transfer certificates, issued through the GCAT 2022-NQM5 Trust.
Eight Hundred Forty-Nine Mortgages Backing Collateral Pool As of Oct. 1 Deal Deadline, Morningstar Presale Report Shows | DBRS. The range of mortgage loan quality derives from the various mortgage loan programs in the pool as well as the different originators who contribute to it.
GCAT 2022-NQM5 will issue the Notes through a senior subordinated capital structure, one of its forms of credit enhancement.
Arc Home and Quontic Bank contributed 53.1% and 44.5% of loans to the pool, while the other originators each contributed less than 15.0% of loans to the pool, according to DBRS. Programs include bank statement loans, which rely on bank statements to qualify the income of self-employed borrowers; loans on complete documentation, based on the sources of income of the borrowers and granted to borrowers who meet the rules of repayment capacity; and debt service coverage ratio loans to borrowers seeking investment property financing, referred to as business loans.
With the exception of loans to investors for commercial purposes, the originators have extended the loans to satisfy qualified mortgage and repayment capacity rules. However, they were still aimed at borrowers who are generally not eligible for non-agency, agency, government or private label jumbo prime products, DBRS noted. Some 17.00% of loans are designated as non-QM, 23.8% are considered a safe harbor and 3.6% a rebuttable presumption.
DBRS noted that Quontic Bank, which originated a large percentage of the loans, 44.5%, is a designated community development financial institution, which is exempt from QM/ATR rules, DBRS said. Although CDFIs are not required to lend under the ATR rules, loans have been made primarily to creditworthy borrowers. On a weighted average (WA) basis, CDFI borrowers had a debt-equity ratio of 31.8% and a credit score of 738, according to the rating agency.
Overall, borrowers in the pool have good credit quality, as DBRS noted that the underlying mortgages have a WA FICO score of 742. Additionally, by loan balance, 73.6% of borrowers have FICO scores of at least 720.
Although credit quality is mixed, with preferred and non-preferred borrowers, DBRS noted that as loans move down the credit spectrum in terms of documentation and occupancy, other offsetting factors come into play. at stake, such as lower LTVs, higher incomes and large reserves.
On average, the loans have a balance of $541,296 and a coupon of 6.04%. Purchases, 63.0%, represent the bulk of loan completions, followed by cash refinances, 26.9%. Primary residences represent the most occupancy types, 72.4%, followed by investor-owned properties, 22.5%.