Angel Oak Capital has completed a $132.65mn bond offering backed by riskier residential mortgages, as firms continue to try and re-invigorate the market after its post-financial crisis demise.

Low-quality, sub-prime mortgage deals drew fierce criticism for their role in the 2008 financial crisis, causing the market to dry-up in the years since. Now, non-bank lenders are warming to housebuyers that do not meet strict borrowing guidelines introduced after the crisis, writes Joe Rennison in New York.

Angel Oak’s deal is their second foray into the market and sits among a handful of other deals issued over the past year. Angel Oak originates its own mortgages through its lending arm before bundling them up and selling different slices of risk to investors at differing rates of return.

The loans must still meet so called “ability-to-repay” rules that mean the lender must ensure the borrower is reasonably able to repay the loan. Banks have satisfied the rule by adhering to stricter “qualified mortgages” that can then be sold to government agencies such as Fannie Mae and Freddie Mac.

Non-agency retail mortgage backed securities saw almost $60bn of issuance in 2015, up from just $8bn in 2009 but still a fraction of the $1tn issued in both 2005 and 2006, according to data from the Securities Industry and Financial Markets Association.

The industry passed a landmark earlier this year when Lone Star issued the first rated bond since the financial crisis. The Angel Oak deal is unrated and offers a return of 3.5 per cent on the lowest risk tranche and 4.491 per cent on the second tranche.

“There is a stark difference between the collateral in our non-prime loans today and the subprime products issued prior to the financial crisis,” said John Hsu, the firm’s head of capital markets. “Today’s loans adhere to the ‘ability-to-repay’ regulation and require significant down payment.”

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