I feel confident that the meaning is, in a word, Christian.
The phrase appears, unsurprisingly, in the Bible (KJV), notably in Paul's epistle to the Romans, chapter 1 vs. 7: "To all that be in Rome, beloved of God, called to be saints: … ."
Other close phrases also appear in the Bible with the same meaning. In that context it means "those whom God loves" and it refers to believers.
The phrase has also entered into the general church vernacular as an idiom for Christian. It is in the idiomatic sense that Oates's character uses the phrase.
You bring up some good questions. The phrase, when used idiomatically, can easily result in some confusing uses, as in your example from Oates. The fixed expression was established in its positive sense. When used in the negative sense as in your example, it appears to imply that God does not love unbelievers. But this idea doesn't hold up. Context demands that we acknowledge God's love for the world (Gospel of John 3:16), notably these very saints before they were believers. In its original positive form, the phrase affirms a special relationship between God and believers.
So I settle on considering it a fixed phrase meaning Christian, and then it works in both the positive sense and, as Oates's character uses it, in the negative.
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