Scratch and Dent Reverse Mortgage MBS Could Help Private Label Market

NewImage.jpgStructured Finance News is reporting that the $92 million securitization of private label “scratch and dent” reverse mortgages from Bank of America could help pave the way for reverse mortgage MBS deals in the struggling private label market.

While the deal has yet to find a buyer, “It could signify that the private securitization market is coming back, maybe starting the return of the HECM securitization process on a private basis,” said Bob Yeary, chairman of Reverse Mortgage Solutions.

Yeary told National Mortgage News that to the best of his knowledge, the transaction is the first securitization of this type done in the reverse mortgage market.

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RMS says the it’s involved in a portion of the deal, and of the loans it has seen are HECMs not in government or agency securities pools for one reason or another. They are “most likely in portfolio,” he said, noting that they might be Fannie Mae buybacks, have a shortfall in equity or taxes and insurance, or be in a foreclosure situation. They do not involve borrower distress, he added.

Reverse Mortgage Securitization Seen as Breaking New Ground

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  • So the vast majority must be variable rate HECMs. If that is the case, it is no wonder there are no buyers to date, especialy if there is a significant portion of these loans that are not full draw.

  • The_Critic: There are no buyers to date because this deal is the first of its kind, and determining a proper market price for such a security is no easy task. Your comments on this site are generally pretty good, but it seems your understanding of the secondary markets has room for improvement. This isn't a “fixed” vs. “variable” issue, this isn't a “full draw” vs. “partial draw” issue, this is about the market determining a price for scratch and dent HECM loans that are likely problematic and will require intensive action to correct them.

    • ReverseStash,

      Unless I am greatly mistaken the appetite in the secondary market is not nearly as strong for adjustable rate HECMs as it is fixed rate. The premiums paid are much different as well as concern about other differences between the two types of products.

      If my view is over simplistic and wrong, perhaps you can correct that view and put it into better perspective. Current conditions on the secondary market is certainly not my expertise.

  • If this type of a security can be put together and a sale of such can be accomplished, I see this as a major break through. The security will have to be priced attractively to be salable. How tainted the pool is will also determine the salability of the pool.

    Depending on the make up of the $92 Million dollar pool, BOA may be able to get the security insured by the likes of an AIG and rated by one of the rating agencies. If this could be done, I see this as being doable. If BOA is creative enough in structuring of the pool, this could open the doors to many opportunities for our industry.

    Good Day,

    John A. Smaldone

  • If this type of a security can be put together and a sale of such can be accomplished, I see this as a major break through. The security will have to be priced attractively to be salable. How tainted the pool is will also determine the salability of the pool.rnrnDepending on the make up of the $92 Million dollar pool, BOA may be able to get the security insured by the likes of an AIG and rated by one of the rating agencies. If this could be done, I see this as being doable. If BOA is creative enough in structuring of the pool, this could open the doors to many opportunities for our industry.rnrnrnGood Day,rnrnJohn A. Smaldone

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