Finance of America Reverse issues second round of defaulted reverse mortgage bonds

Deal signals continued investor appetite for HMBS

Finance of America Reverse is back with a second round of defaulted reverse mortgage bonds. The $399 million offering is a solid marker of investor appetite for HECM-backed securities.

Dan Ribler, president of HECM data analytics firm Baseline, said the deal is a positive sign of liquidity for the reverse mortgage market.

“Every time one of these trades, it’s a good thing,” Ribler added. “It’s yet another data point that there is liquidity for this type of deal, and that’s fantastic. There are more options for issuers.”

Ribler said 98% buyouts have been steadily increasing, and as buyouts trend higher, we’re likely to see more deals like this in the future as issuers look for financing.

“We certainly expect to see that trend continue, so the demand for this type of product is likely to continue,” Ribler said. “The need for this type of securitization is not going to go away.”

According to Moody’s Investors Service, Finance of America Structured Securities Trust 2018-HB1 has a loan-to-value ratio that is about 10 percentage points lower than the deal completed previously completed by the company. Its weighted loan-to-value ratio was 94.72% compared with an 106.4% LTV on the previous deal.

An article by American Banker’s Asset Securitization Report notes that this LTV is lower than any of the six deals issued by Nationstar in the last three years, which had LTVs ranging from 123% to 183%.

Ribler said the fact that these bonds are being structured in different ways is interesting.

“The market is looking at different flavors of the same bond, which is a positive thing,” Ribler said. “As an industry, the more liquidity there is for this stuff the better, and the cool thing is that FAR is putting something out there that is a little bit different than what we’ve seen before, so it will be interesting to get a read on how it prices out.”

According to the article, the credit quality of the bonds is similar to other defaulted bonds rated by Moody’s.

Most of the properties are in foreclosure (40%), while the rest are due and payable (34%), in default (15%), in bankruptcy (6%) or have been repossessed (4%).

Moody’s expects the liquidation timelines on FASST 2018-HB1 to exceed that of Finance of America’s previous deal and all of Nationstar’s deals, according to the article.

This is for three reasons: because the deal includes a lower percentage of properties that have already been repossessed; because the majority of bankruptcies are already in Chapter 13 and will take time to resolve; and because nearly 12% of the properties are in Puerto Rico, where economic conditions are poor post-hurricane.

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