Nationstar's next defaulted reverse mortgage securitization recycles are large amount of collateral from two previous transactions that were "collapsed" because proceeds from liquidations slowed over time, according to Moody's Investors Service.

And, like many of Nationstar's recent deals, a large percentage of the collateral is in states with long foreclosure timelines — all of which suggest that the transaction will be outstanding for a long time. Unless of course, Nationstar decides to collapse it.

Then there's the exposure to Puerto Rico, which, though small, is larger than in other Nationstar deals.

The collateral for Nationstar HECM Loan Trust Asset-Backed Notes, Series 2018-1 involves 1,558 loans and 233 properties totaling $443.2 million, according to Moody’s Investors Service. Reverse mortgages are loans issued to borrowers 62 or older to convert a portion their home equity into cash. Nationstar, which is controlled by Fortress Investment Group, acquired all of the loans from Ginnie Mae-sponsored securitizations.

As with the servicer’s previous eight deals, payments to the notes will primarily come from the sale of repossessed properties and insurance claim payments from the Federal Housing Administration. However, the timing of the receipt of these funds depends on local real estate markets.

Over 40% of the collateral is being recycled from two recently collapsed transactions, NHLT 2016-2 (17.1%) and NHLT 2016-3 (24%). As such, a significant percentage of the mortgage asset balance is made up of collateral that has been inactive for a long period of time without reperforming or successfully liquidating. The weighted average seasoning of the pool is 86 months, which is longer than previous NHLT transactions that we Moody’s has rated.

Also, many of these properties are also located in states with long foreclosure timelines such as New York (24.3%), New Jersey (9.5%) and Florida (6.2%). Moody's does not indicate in its presale report how much overlap there is between the recycled collateral and the collateral in judicial foreclosure states.

This transaction has a lower percentage of repossessed homes than most previous Nationstar transactions rated by Moody's. This suggests that a smaller percentage of assets will be liquidated shortly after closing compared to previous deals and therefore the weighted average life may be longer.

There are 16 properties in the pool that have been damaged by hurricanes or wildfires (15 of these properties are in FEMA identified disaster areas). The properties affected by the hurricanes or wildfires are less likely to be liquidated within six months of becoming REO properties because a significant amount of time may be needed to repair and market.

Also, this initial exposure to Puerto Rico (1%) is nearly twice as high as any other NHLT transaction Moody’s has rated. Puerto Rican HECMs pose additional risk due to the poor state of the Puerto Rican economy, declining population and bureaucratic foreclosure process.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.