AFG Securities issues first non-conforming RMBS

The wholly owned subsidiary of aggregation group Australian Finance Group (AFG), AFG Securities, has successfully priced the AFG 2020-1NC Trust $500 million issue, the first issue under its non-conforming program.

Given that this is the inaugural residential mortgage-backed securities (RMBS) issue under the non-conforming program, the portfolio includes low-documentation and non-conforming loans originated by AFG Securities.

The issue is AFG Securities’ 10th issue since 2013, taking the total paper issued to the market by AFG Securities to $4.075 billion.

AFG told Mortgage Business that the non-conforming loan book within its warehouse had grown to a level where this type of RMBS transaction was possible.

AFG CEO David Bailey said the transaction has received support from domestic and international investors.

“We are very pleased to be able to upsize the transaction from $350 million to $500 million due to strong interest from both new and returning investors,” Mr Bailey said.

He added that AFG Securities’ loans, which are 100 per cent broker-introduced, have tracked below the Standard & Poor’s Performance Index (SPIN).

“Our underwriting standards, arrears management processes and policies, as well as our low historical arrears and loss performance, have informed the support of the transaction,” Mr Bailey said.

National Australia Bank was the arranger on the transaction and acted together with the Commonwealth Bank of Australia as joint lead manager.

According to AFG’s full-year results for 2020 (FY20), the level of COVID-19 hardship cases with full deferral of principal and interest payments in AFG Securities (operational) improved from 4.98 per cent as at 7 May to 2.03 per cent as at 21 August.

At 30 June 2020, in a book of 7,543 loans, there were only 19 loans in arrears greater than 30 days.

No losses were incurred on non-lender’s mortgage insurance (LMI) insured loans, while 50 per cent of the book has a loan-to-value ratio (LVR) of greater than 70 per cent, with loans greater than 80 per cent LVR covered by LMI.

More than half of the loans in the COVID-19 hardship had returned to either part or full payments, while total hardship reduced from 9.56 per cent as at 7 May to 5.33 per cent as at 21 August.

[Related: AFG Securities updates clawback structure]