Archive for the ‘Proprietary Reverse Mortgage’ Category

Bob Gross

Friday, January 27th, 2017

New View Advisors would like to take a moment to recognize and mourn the loss of Bob Gross, who passed away on December 12th. Everyone knew Bob and everyone liked Bob. There was nothing not to like. Bob was a seasoned mortgage and securities lawyer, a true go-to resource, an early pioneer in the birth of the reverse mortgage capital markets, and a friend to anyone and everyone who spent time with him. In addition to his battle-tested skillset, Bob also showed us all how to transact with dignity, calm, and an ever-present sense of humor and perspective.

Along with his partners and team at then McKee Nelson, and later Bingham McCutchen, Bob worked on every proprietary reverse mortgage securitization underwritten by Lehman Brothers. We take for granted now the securitization machine, but in its early days, every closed transaction was a miracle. Bob was an integral part of that process.

It will be a little harder and a lot less fun attending investor conferences, calling around for answers to complex mortgage problems, or giving out securitization lawyer referrals, knowing Bob won’t be on the list. We will miss him dearly.

SASCO 2005-RM1: Proprietary Reverse Mortgage Winning Streak Continues

Tuesday, May 31st, 2016

Structured Asset Securities Corporation Reverse Mortgage Loan Trust Series 2005-RM1 (“SASCO 2005-RM1”) became the third securitization trust of proprietary reverse mortgage loans to pay off completely. The remaining bondholders received their final payments on March 25, 2016; all bondholders received their principal and interest payments in full. The trust was created in March 2005, and was the third reverse mortgage securitization in U.S. history. The first two securitizations, SASCO 1999-RM1 and SASCO 2002-RM1, both paid off successfully in 2014.

SASCO 2005-RM1 issued 4 bond classes: Classes A1, A2, A-IO, and M1. The bonds, totaling $503.5 million, were secured by 1,218 proprietary reverse mortgage loans. These loans were almost entirely Financial Freedom “Cash Account” loans.

As we noted in 2014, reverse mortgage lenders need new products, as FHA continues to turn the screws on its HECM program. Proprietary loan origination peaked in 2007, with production near $100 million per month, but ground to a halt with the mortgage crisis, crashing home prices, and the virtual destruction of the non-agency securitization market. Beginning in 2014, reverse mortgage lenders have revived proprietary reverse mortgage originations, after a six year hiatus with very little new production.

SASCO 2005-RM1’s history can only help this revival by reinforcing the relative value story of proprietary reverse mortgages. If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments. The credit story derives mainly from the very low original Loan-to-Value (“LTV”) ratios of these loans, combined with very conservative rating agency criteria. As was the case with all SASCO proprietary reverse securitizations, the rating agencies (in this case, Moody’s, S&P, and Fitch) were right to insist that the triple-A Class A bonds be protected against a 30%+ decline in home prices — which was exactly the stress the trust successfully endured. The transaction’s successful payoff continues a winning streak of nearly 17 years, including the darkest years of the mortgage crisis, in which no proprietary reverse mortgage bond has suffered a principal loss or write-down.

The stability of the prepayments can be seen in many ways, such as the relatively tight band of prepayment rates experienced by the trust during its 11 year tenure. The projected weighted average life for the Class A1 bond was 4.86 years at 100% of the Base Case Prepayment Curve (“100% PPC”), and 5.89 years at 75% PPC. The actual result: 5.17 years. Class A2 yielded a 2.88 year weighted average life, almost exactly equal to its predicted 2.86 year weighted average life. Class M1 was projected to have a 3.84 year weighted average life, and clocked in at 3.92 years. Class A-IO paid all of its cash flow exactly to its schedule.

SASCO 1999-RM1: One for the Record Books

Thursday, June 26th, 2014

The reverse mortgage capital markets experienced another important milestone Tuesday as Structured Asset Securities Corporation Reverse Mortgage Loan Trust Series 1999-RM1 (“SASCO 1999-RM1”) became the second securitization trust of such loans to pay off completely.  The remaining B class bondholders received their final payments on June 25th, 2014; all bondholders have now received their principal and interest payments in full.  The trust closed in August 1999, and was the first reverse mortgage securitization in U.S. history.  (The second was SASCO 2002-RM1, which paid off in January.)

SASCO 1999-RM1 paved the way for all reverse mortgage securitizations, both proprietary and HECM.  This transaction proved that reverse mortgages could be securitized in the U.S., despite skepticism that investors would reject bonds backed by loans without regular payments.  It also established a conservative but durable set of rating agency criteria that have stood the test of time, including the Great Recession and collapse of housing prices.  It whetted investors’ and originators’ appetites for further issuance and importantly, a change in federal tax law that allowed reverse mortgages and other HELOCs to be issued in REMICs.  This loosened Fannie Mae’s grip on the HECM market, as dealers began to bid on HECM pools for whole loan securitization.  FHA and Ginnie Mae took note, and the HMBS and H-REMIC markets were born.

The beginning of a successful partnership between Lehman Brothers and Financial Freedom, SASCO 1999-RM1 issued 4 bond classes: Class A, M1, M2, and B, in order of seniority.  These bonds, totaling approximately $317 million, were secured by 2,500 proprietary reverse mortgage loans.  These loans included adjustable rate “Cash Account” and fixed rate “Lifetime” loans originated by HomeFirst, the reverse mortgage division of Transamerica.  Financial Freedom also acquired the HomeFirst origination and servicing platform.

The possible revival of the proprietary or “jumbo” reverse mortgage origination market is a hot topic in the industry, born of opportunity and necessity.  Reverse mortgage lenders need new products as the FHA turns the screws on the HECM program.   Meanwhile, mortgage investors are seeking supply and yield as “forward mortgage” refinancing burns out from interest rates ticking upward.  Proprietary loan origination peaked in 2007, and ground to a halt with the mortgage crisis, crashing home prices and the virtual destruction of the non-agency securitization market.   Currently, only a handful of proprietary reverse mortgages are originated each year.

Like SASCO 2002-RM1, SASCO 1999-RM1’s history can only help this revival by reinforcing the relative value story of proprietary reverse mortgages.  If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments.  The transaction’s successful payoff continues a winning streak of 15 years, including the darkest years of the mortgage crisis, in which no proprietary reverse mortgage bond has suffered a principal loss or write-down.

The stability of the prepayments can be seen in many ways, such as the relatively tight band of prepayment rates experienced by the trust during its 15 year life.  The predicted weighted average life for the Class A was 5.0 years at 100% of the Base Case Prepayment Curve (“100% PPC”).  The actual result was almost exactly 5 years.  Class M1 paid to its schedule until Class A paid off, but still paid almost exactly to its predicted 7.5 year weighted average life.  Class M2 paid to its schedule, giving investors exactly the 5 year average life predicted.  Even the Class B, which by virtue of its place at the bottom of the cash flow waterfall bore the brunt of both credit and prepayment risk, had a 14.3 year weighted average life, compared to the 14.0 and 11.7 predicted at origination for 75% PPC and 100% PPC, respectively.

A complete history of SASCO 1999-RM1’s bond paydowns can be found here.

SASCO 2002-RM1: Thanks for the Memories, and the Performance

Friday, February 7th, 2014

An important development quietly took place recently amidst widespread industry discussion of proprietary or “jumbo” reverse mortgages, as Structured Asset Securities Corporation Reverse Mortgage Loan Trust Series 2002-RM1 (“SASCO 2002-RM1”) became the first securitization trust of such loans to pay off completely. The remaining A, B, and C class bondholders received their final payments on January 27, 2014; all bondholders received their principal and interest payments in full. The trust closed in November 2002, and was the second reverse mortgage securitization in U.S. history. (The first was SASCO 1999-RM1, which has barely $6 million of its original $317 million bonds outstanding. It will probably also payoff completely in the first half of 2014.)

SASCO 2002-RM1 issued 5 bond classes: Class A, M1, M2, B, and C, in order of seniority. These bonds, totaling approximately $291 million, were secured by 903 proprietary reverse mortgage loans. These loans included newly originated Financial Freedom “Cash Account” loans, but also some very seasoned collateral, originated by pioneering reverse mortgage lenders American Homestead and Providential Home Income Plan, Inc. The borrowers were even more seasoned: some were born in the 19th century. This “barbell” of old and new collateral rewarded bondholders as the older loans provided cash flow in the near term and the newer loans provided excess spread for the long term.

The possible revival of the proprietary or “jumbo” reverse mortgage origination market is a hot topic in the industry as 2014 unfolds, born of opportunity and necessity. Reverse mortgage lenders need new products, as the FHA continues to turn the screws on the HECM program. Meanwhile, mortgage investors are seeking supply and yield as refinancing burns out as low interest rates tick upward. Proprietary loan origination peaked in 2007, with production approaching $100 million per month, but ground to a halt with the mortgage crisis, crashing home prices and the virtual destruction of the non-agency securitization market. Currently, only a handful of proprietary reverse mortgages are originated each year.

SASCO 2002-RM1’s history can only help this revival by reinforcing the relative value story of proprietary reverse mortgages. If properly structured, proprietary reverse mortgage securities provide substantial credit protection with (like their HECM cousins) very stable prepayments. The credit story derives mainly from the very low original Loan-to-Value (“LTV”) ratios of these loans, combined with very conservative rating agency criteria. Give them credit: the rating agencies (in this case, S&P and Fitch) were right to insist that the triple-AAA Class A bonds be protected against a 30%+ decline in home prices — which was exactly the stress the trust successfully endured. The deal’s successful payoff continues a winning streak of nearly 15 years, including the darkest years of the mortgage crisis, in which no proprietary reverse mortgage bond has suffered a principal loss or write-down.

The stability of the prepayments can be seen in many ways, such as the relatively tight band of prepayment rates experienced by the trust during its 11 year life. The predicted weighted average life for the Class A was 3.9 years at 100% of the Base Case Prepayment Curve (“100% PPC”), and 5.1 years at 75% PPC. The actual result: 4.9. Class M1 paid to its schedule, paying off in 2006 exactly at its predicted 3.6 year weighted average life. Class M2 was predicted to have a 3.6 year weighted average life, it clocked in at 3.5 years. Even the Class B, which by virtue of its place at the bottom of the cash flow waterfall bore the brunt of both credit and prepayment risk, had a 11.2 year weighted average life, compared to the 10.2 and 12.2 projected at origination for 100% and 75% PPC, respectively.