In another milestone for reverse mortgage capital markets, this week marked the complete pay off of a second securitization trust of reverse mortgages this year, according to a recent New View Commentary.
The first reverse mortgage securitization in U.S. history, Tuesday’s pay off of Structured Asset Securities Corporation Reverse Mortgage Loan Trust Series 1999-RM1—known as SASCO 1999-RM1—follows SASCO 2002-RM1, which was paid off in January.
Closed in 1999, SASCO 1999-RM1 paved the way for all reverse mortgage securitizations, both proprietary and Home Equity Conversion Mortgages (HECMs).
“This transaction proved that reverse mortgages could be securitized in the U.S., despite skepticism that investors would reject bonds backed by loans without regular payments,” writes New View.
The beginning of a partnership between Lehman Brothers and Financial Freedom, SASCO 1999-RM1 issued four bond classes, totaling approximately $317 million, and were secured by 2,500 proprietary reverse mortgage loans.
Such loans included adjustable rate “Cash Account” and fixed rate “Lifetime” loans originated by Transamerica’s reverse mortgage division, HomeFirst.
SASCO 1999-RM1 was also a trailblazer in establishing a set of rating agency criteria that has stood the test of time, weathering the Great Recession and the housing market crash.
“It whetted investors’ and originators’ appetites for further issuance and importantly, a change in federal tax law that allowed reverse mortgages and other HELOCs to be issued in REMICs,” New View writes.
The history of SASCO 1999-RM1can be a driving force in the possible revival of the proprietary reverse mortgage market, suggests New View, especially as the Federal Housing Administration “turns the screws” on the HECM program.
“If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments,” writes New View. “The transaction’s successful payoff continues a wining streak of 15 years, including the darkest years of the mortgage crisis, in which no proprietary reverse mortgage bond has suffered a principal loss or write-down.”
Access the New View Commentary.
Written by Jason Oliva