Given the rising delinquency rates, Angel Oak became increasingly concerned about the adverse harm to the firm that would result from an early amortization, particularly so soon after the securitization’s closing in March 2018.
Among other things, Angel Oak discussed the negative impact of an early amortization on the firm’s ability to conduct future securitizations as well as on investors’ perception of the quality of the underwriting criteria used by Angel Oak affiliates to originate mortgage loans. Angel Oak also discussed the adverse financial impact of an early amortization on Angel Oak-managed private funds, which owned the junior tranche of the securitization notes.
To avoid paying back investors early, Angel Oak took undisclosed measures to reduce mortgage delinquency rates. They did this by using funds that were supposed to go towards expenses related to renovating the properties and instead made payments on delinquent mortgages. This went against what was stated in the securitization’s offering materials and resulted in lower delinquency rates.
