Nationstar Readies $325M Defaulted Reverse Mortgage Deal

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Nationstar Mortgage is issuing its seventh securitization of nonperforming reverse mortgages.

The collateral for Nationstar HECM Loan Trust Asset-Backed Notes, Series 2017-1 involves 1,283 inactive reverse mortgage loans and 229 real-estate owned, or repossessed, properties with a total balance of $324.5 million. Reverse mortgages are loans issued to borrowers 62 or older to convert a portion their home equity into cash.

Nationstar acquired the mortgages from Ginnie Mae sponsored securitizations. All are covered by Federal Housing Administration insurance for the repayment of principal up to certain amounts. Payments to the notes will primarily come from a combination of sales proceeds from the liquidated properties and insurance claim payments from FHA insurance.

Moody's has assigned preliminary ratings to three tranches of notes with a legal final maturity of May 2027: $215.8 million of Class A senior notes are provisionally rated Aaa; $60.04 million of subordinate Class M1 notes are rated A3; and $32.45 million of subordinate class M2 notes are rated Ba3.

Some drawbacks for all securitizations of nonperforming reverse mortgages are that the FHA doesn’t fully reimburse at the stated interest rate of the loan (rather the lower debenture rate set by Housing and Urban Development) nor does it provide full reimbursement of the foreclosure costs of a property (at about $4,500 per home).

Compared to other NHLT transactions that Moody's has rated, one of the pool's strengths is a low weighted average loan-to-value plus insurance ratio. "This implies that, all else equal, fewer loans in this pool will have their insurance claims capped," the presale report states. It is also suggests that borrowers in this pool tend to have more equity in their homes compared to in prior transactions which may lead to higher cure and repayment rates."

Another strength is the small numbers of loans in New York and Florida, which implies that foreclosures will require a shorter period of time, which will help to reduce the weighted average life of the bonds. And this reduces expected losses because if the bonds are outstanding for too long they begin to accrue supplemental interest (at 3.0%) in addition to regular note-rate interest.

Weaknesses of the pool include a lower weighted average debenture rate and a slightly lower percentage of REO properties compared to previous NHLT transactions that Moody's has rated.

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