Angel Oak Capital Advisors recently became the first US lender to sell a “social” mortgage bond without government support.
The deal, which closed about a week ago, is a remarkable step for a private U.S. mortgage lender looking to join the sustainable finance movement.
The mortgage loan helped fund approximately $ 232 million in home loan finance, mostly to self-employed borrowers, but also to small business owners and others who were excluded from traditional home loan programs.
Angel Oak’s head of ESG Rob McDonough said the lender was focused on “filling in the gaps” created by stricter underwriting standards emanating from the last property crash more than a decade ago and borrowers “not Standard revenue streams like gig workers and contractors out in the cold.
The pandemic has hit self-employed borrowers particularly hard, even though property prices have skyrocketed amid historically low supply of properties for sale and relatively cheap interest rates for borrowers. After a brief hiatus in the early months of the COVID-19 crisis, McDonough said Angel Oak’s credit volume has returned to pre-pandemic levels.
While the lender isn’t focused on financing affordable housing or lending specifically to black or minority communities, McDonough said that its loan origins are regularly checked to ensure that loans are being offered in line with the offer fair lending laws.
“The issue of racial inequality is paramount,” he told MarketWatch. “We generally want to expand our lending to various market segments.”
Angel Oak’s new bond deal bundled around 450 home loans with an average coupon of 5.9% and a balance of just under $ 500,000, according to Fitch Ratings. The borrowers had an average credit score of 740 and monthly income of $ 16,466.
Financing that met the government’s stricter lending standards after the 2008 crisis continues to make up the majority of the U.S. home finance market at nearly $ 11.7 trillion the Urban Institute.
Quarterly sustainable bond issuance, which includes green, social and sustainable bonds, hit a record $ 231 billion in the first quarter of 2021, more than three times the volume a year earlier, according to Moody’s.
McDonough also said Angel Oak may in the future work with minority companies or banks in the community to expand the origins of its home loans.
have also increased their social mortgage bond issuance, with an emphasis on financing affordable housing. Like the two agencies, Angel Oak’s social bond is up to the standards of the International Capital Markets Association for ESG.
“We want to use that momentum and get started,” said McDonough.