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July 17, 2020  

Reverse-Mortgage Securitizations Piling Up

Actions taken by regulators and lenders in response to the coronavirus crisis have put the market for reverse-mortgage bonds on pace for what could be its biggest year ever.

Ten deals totaling $3 billion already have priced this year, compared with 12 offerings for $3.7 billion in all of 2019 and nine deals totaling $3 billion in 2018. If the trend continues, the 2020 tally could approach or surpass the record volume seen in 2007, when issuance amounted to $5.7 billion across 11 deals, according to Asset-Backed Alert’s ABS Database.

Momentum in the sector continued this week, with a $594.2 million offering from Finance of America hitting the market. The deal, expected to price this week or next, would mark the biggest reverse-mortgage securitization since 2008.

The jump in issuance appears to be tied to moves made amid the pandemic. The Federal Housing Administration, for instance, on March 29 relaxed rules governing home appraisals and allowed digital document delivery for reverse mortgages, streamlining the application and closing process.

That coincided with a decision by lenders to tighten standards for home-equity lines of credit, with some banks, among them J.P. Morgan and Wells Fargo, halting new applications altogether. For seniors concerned about their finances during the pandemic, reverse mortgages appear to be an attractive alternative.

Eight of this year’s deals priced after the pandemic took hold in March. Waterfall Asset Management and other routine issuers have additional offerings in the pipeline through yearend, while new issuers including Putnam Investments are preparing to come to market. The Putnam deal is expected to total $300 million to $500 million, with Nomura running the books.

“There is significant interest, and the investment banks in this space are looking at different options for securitizing the different product types,” one source said. “So we expect to see more securitization of new product and some variations based on nuances within the asset class.”

Reverse mortgages are loans written to people age 62 or older against the equity in their homes. No payments are due until the owners sell the homes, die or miss tax or insurance payments on the properties.

Until December, most reverse-mortgage securitizations had been underpinned by inactive loans, in which bondholders are repaid with proceeds from sales of the underlying homes. A $267 million offering by Finance of America that month marked the first deal backed by active reverse mortgages since the financial crisis. In those cases, borrowers remain in their homes, and investor distributions are facilitated by issuers tapping HUD guarantees that allow them to transfer the accounts to the agency.