Lehman Brothers last week closed its second reverse mortgage transaction since 2002. Contrasting from its 2005 issue, the $598 million SASCO 2006RM1, incorporates a $25 million single-A tranche. At least five more deals are expected in the market from various issuers prior to yearend.

The deal, like Lehman's Reverse Mortgage Loan Trust Series 2005-RM1, is backed entirely with loans generated by reverse mortgage lender Financial Freedom Senior Funding Corp. Another reverse mortgage deal is expected to hit the market soon, along with four more by yearend, according to Vincent Barberio, a managing director in Fitch Ratings' RMBS group. "The inquiries haven't stopped. We are still getting them throughout the market," he said.

A portion of deals expected later this year are anticipated to be backed by the Federal Housing Administration-insured Home Equity Conversion Mortgages (HECM.) Fannie Mae has traditionally purchased most of the mortgages, which constitute about 95% of all reverse mortgage issuance, but regulatory changes have paved the way for their securitization within REMIC structures. Bank of America in early August closed the $221 million Mortgage Equity Conversion Asset Trust 2006-SFG1, which was possibly the first such structure backed entirely by the federally insured loans. The deal came as a single, triple-A rated tranche and was backed by loans originated by Seattle Mortgage Co.

But while securitizations backed by HECM loans can be expected to remain dominant this year, some - such as Barberio - are anticipating the privately issued jumbo reverse mortgages to take over as more accommodating fodder for securitization in 2007. The jumbo loans do not encounter the regulatory constraints placed on the HECM loans, he said. (The FHA caps both the size of HECM loans and the number that can be originated each year.) As well, a number of issuers are stepping into the private market.

Countrywide Financial Corp. in late July announced plans to enter the reverse mortgage market - and do so heavily (ASR, 7/30/06.) The number one mortgage lender is hoping to become the top issuer of the mortgages, which are expected to become increasingly popular among the aging baby boomer crowd.

Financial Freedom's dollar volume alone increased to $1.1 billion in the first quarter from $506 million a year earlier. The lender is a subsidiary of IndyMac Bank and the largest reverse mortgage lender by market share. While it has historically sold its proprietary loan product to Lehman Brothers, the lender earlier this year was in negotiations to sell its Federally insured strain of reverse mortgage loans to an additional private investor. The lender is also considering the prospect of direct securitization, Mahoney said.

Reverse mortgages are essentially an alternative to home equity loans for elderly homeowners. In a reverse mortgage, the lender typically pays the borrower, either once, monthly or in a line-of-credit fashion, based on the home's value and length of time the borrower is expected to live or occupy the residence.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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