A small private-label 'scratch and dent' securitization backed by government reverse mortgages appears to be the first deal of this type, and could pave the way for more reverse MBS deals in the struggling private-label market.
Bob Yeary, chairman of reverse mortgage servicer and REO management company RMS, noted that the Bank of America securitization is also the first private-label reverse mortgage deal seen in the market since the downturn. It could signify that "the private securitization market is coming back, maybe starting the return of the HECM securitization process on a private basis," he said.
Yeary told National Mortgage News that to the best of his knowledge, the transaction is the first securitization of this type done in the reverse mortgage market.
The RMS executive, who was involved in a portion of the deal, said the loans he has seen are Home Equity Conversion Mortgages that are not in government or agency securities pools for one reason or another. They are "most likely in portfolio," he said, noting that they might be Fannie Mae buybacks, have a shortfall in equity or taxes and insurance, or be in a foreclosure situation. They do not involve borrower distress, he added.
"These are not distressed loans," he cautioned. "They're just in the process of being liquidated. It takes time because of various state and federal regulations regarding foreclosure properties." The FHA claim process allows the investor to be reimbursed for carrying costs during the time the property is in foreclosure, he said. A BofA spokesman told NMN the loans are "scratch and dent" quality.
Independent reverse mortgage industry consultant Atare Agbamu, president/CEO of ThinkReverse , Oakdale, Minn., said he is not familiar with the deal but noted that there are two main types of risks in "scratch and dent" reverse products: taxes and insurance, or repair defaults.
These two concerns do not necessarily involve borrower distress but often do, he said. T&I defaults in particular have been a concern for lenders because tax liens supersede all other liens.