Home equity conversion mortgages (HECM), or reverse mortgages, originated between 2006 an 2021 will provide collateral for $264.9 million in securitized notes through the Ocwen Loan Investment Trust, 2023-HB1.
Reverse mortgages are home equity loans extended to borrowers at least 62 years old, which do not require periodic repayment of principal or interest. This deal marks the first time that PHH Mortgage, a subsidiary of West Palm Beach, Fla.-based mortgage servicer Ocwen Financial, is sponsoring a reverse mortgage securitization.
Ocwen Loan Investment Trust is slated to close within the week, and has a collateral pool consisting of 1,054 performing (25.14%) and nonperforming reverse mortgages. Among the nonperforming assets 44.01% are either in foreclosure or referred for foreclosure; 19.32% are in default; 7.17% are liquidated and 1.75% are in bankruptcy status. Despite the high percentage of non-performing assets and their varying troubled states, the U.S. Department of Housing and Urban Development (HUD), which mitigates losses in the pool, DBRS said.
The pool also includes real estate owned assets, typically secured by first lien loans on single-family homes, DBRS said. One hundred, forty-one of the total assets in the pool, representing 15.31% of the balance, are fixed-rate loans, and they have a weighted average coupon (WAC) of 4.99%.
The rest of the assets, 913 loans, will pay floating-rate interest rates, at 6.38%, which brings the WAC of the entire collateral pool to 6.17%.
Ocwen Loan Investment Trust will repay investors through a sequential structure, where no subordinate notes, in this case classes M1 through M5, will receive any principal payments until the senior notes have been reduced to zero, DBRS said. Should the notes fail to repay investors on the June 2026 Mandatory Call Date, this will trigger a mandatory auction of all the assets in the deal. Auctions will continue to occur at three-to six-month intervals, should the previous selloff fail to raise enough proceeds to pay off all the outstanding notes, DBRS said.
DBRS expects to assign ratings of 'AAA' to the class A notes; 'AA' to the M1 class; 'A' to the M2 notes; 'BBB' to the M3 notes; 'BB' to the M4 notes and 'B' to the M5 notes.
