The second reverse mortgage securitization in U.S. history has paid off after withstanding for several years the housing downturn and economic crisis, reports New View Advisors in its most recent commentary.
Comprising proprietary “jumbo” reverse mortgages, Structured Asset Securities Corporation Reverse Mortgage Loan Trust Series 2002-RMI, known as “SASCO 2002-RM1,” is the first securitization trust of such loans to pay off completely.
The security closed in 2002 as the second reverse mortgage securitization in history, and comprised mainly newly originated Financial Freedom “Cash Account” loans, but also some “very seasoned collateral,” New View writes, noting originations from early lenders American Homestead and Providential Home Mortgage.
It issued five bond classes, New View explains, including Class A, M1, M2, B, and C, in order of seniority. The total value, $291 million, was secured by 903 proprietary reverse mortgages.
The payoff signals stability for investors in private reverse mortgage securities, New View says.
“This shows a securitization that weathered very severe stress,” says Joe Kelly, a partner with New View who is familiar with the deal. “All the bonds were paid off and very close to predicted average lives. It shows simply that non-agency securitization can work, in particular for this asset class.”
The timing, too, is noteworthy given recent industry conversation on the comeback of private reverse mortgages following the housing downturn and a time when nearly all reverse mortgages have been Federal Housing Administration-insured.
“The possible revival of the proprietary or “jumbo” reverse mortgage origination market is a hot topic in the industry as 2014 unfolds, born of opportunity and necessity,” New View writes. “Reverse mortgage lenders need new products, as the FHA continues to turn the screws on the HECM program. Meanwhile, mortgage investors are seeking supply and yield as refinancing burns out as low interest rates tick upward….SASCO 2002-RM1’s history can only help this revival by reinforcing the relative value story of proprietary reverse mortgages. If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments.”
New View also noted the structure of not only the bonds but also the loan collateral to withstand substantial home price declines seen in recent years.
“The ratings agencies were right after all,” Kelly says. “If the bond is going to be AAA-rated, it’s supposed to weather a 30% decline in home prices. You have to design the collateral with that stress in mind,” he said of new proprietary reverse mortgages. “Typically that means a lower loan to value ratio than the HECM.”
Written by Elizabeth Ecker