Nationstar Issues Fifth Securitization of Inactive Reverse Mortgages

Nationstar Mortgage recently issued its latest securitization of nonperforming Home Equity Conversion Mortgages (HECMs), making this the company’s fifth transaction backed by inactive reverse mortgages.

Nationstar HECM Loan Trust 2016-2 (NHLT 2016-2) comprises first-lien inactive HECMs covered by FHA insurance to individuals secured by properties in the U.S., along with real estate owned (REO) properties acquired through conversion of ownership of reverse mortgage loans covered by FHA insurance.

The 1,038 mortgage assets included in the deal comprise 859 HECM loans and 179 REO properties. In total, the size of aggregate collateral is approximately $221.2 million, with the HECM loan portion comprising an aggregate balance of $190.1 million and REO properties $31 million.

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Nationstar acquired the mortgage assets from Ginnie Mae sponsored HECM mortgage-backed (HMBS) securitizations.

NHLT 2016-2 follows a similar transaction from Nationstar earlier this year, NHLT 2016-1, which comprised 1,085 inactive HECM loans with a balance of approximately $302.9 million. Mortgage assets in this deal included loans that were either in default, due and payable, foreclosure or REO status.

Compared to NHLT 2016-1, the properties in this most recent transaction (NHLT 2016-2) contain less properties located in states with long foreclosure timelines—a factor that is one of the strongest features of this transaction, according to a report from Moody’s Investor Service.

Specifically, the properties in the NHLT 2016-2 transaction are less concentrated in New York and Florida, compared to the earlier securitization this year.

“Properties in these states are expected to take longer to complete the foreclosure process,” Moody’s writes in its report. “Also, the loans in NHLT 2016-2 pool have a higher concentration of properties in Texas and Maryland where foreclosure timelines tend to be short.”

Another credit strength for the deal, according to Moody’s, is Nationstar’s capabilities to be a primary reverse mortgage servicer for this inactive HECM transaction.

“They have experienced management staff, excess system capacity and additionally are the largest reverse mortgage servicer,” Moody’s writes. “It is also a positive having Nationstar RMBS mortgage affiliate as an additional resource providing foreclosure and real estate owned expertise in residential liquidations.”

Moody’s, however, cautions there could be some credit challenges, given the “operational linkage” with a low rated sponsor.

“Nationstar (B2, stable) as a sponsor/servicer has significant linkage to the transaction,” Moody’s writes. “Furthermore, there is no backup servicer to the transaction. If a replacement servicer is needed, additional servicing fees may be added to the top of the deal waterfall and certain reimbursements to the servicer may no longer be subordinated. There are a number of qualified servicers of these mortgage assets and it is expected that servicing will be readily transferable.”

Last week, Moody’s assigned provisional ratings to three classes of residential mortgage-backed securities issued by Nationstar’s NHLT 2012-2. The ratings range from (P)Aaa (sf) to (P)Ba3 (sf).

Read Moody’s report on the Nationstar transaction.

Written by Jason Oliva