Nationstar launches next inactive HECM deal

Nationstar’s next securitization of defaulted or inactive home equity conversion mortgages will have a higher-than-average exposure to properties with steep leverage, as well as ties to judicial foreclosure states.

According to presale reports, Nationstar HECM Loan Trust Asset-Backed Notes Series 2019-2 is pooling 1,295 mortgage assets totaling $353.14 million, consisting of inactive reverse mortgages that are being recycled out of previous Ginnie Mae-sponsored HECM mortgage-backed securitizations.

The mortgages include 1,128 loans with a total balance of $306.2 million and 167 real estate owned properties with a total balance of 446.8 million.

That REO count is a higher-than-average percentage of bank-owned properties compared to prior Nationstar deals involving inactive reverse mortgages, a credit positive due to the expectation these properties are more easily liquidated after the closing of the transaction.

But the higher weighted average loan-to-value-plus-insurance ratio of 60.6% is higher than Nationstar’s previous transaction on the platform (NHLT 2019-1) as well as “most other” prior NHLT deals, according to Moody’s Investors Service. Moody’s report states the higher ratio “suggests that more loan in the pool will likely suffer losses” due to maximum claim amounts under Federal Housing Administration insurance coverage. (All of the loans are FHA insured, which provides a backstop against investor losses in the deal.)

The deal’s assets also have an extensive exposure to three states — New York, New Jersey and Florida — with court-based foreclosure standards that have extended resolution periods. Moody’s report cited a letter from the U.S. Housing and Urban Development that the expected timeframe for completing foreclosures is 21 months in New York (27 months for New York City alone), 19 months in New Jersey and 25 months in Florida.

The NHNT deal is the fifth inactive reverse HECM transaction for Nationstar since 2018, and includes 436 loans (or 33.67% of the pool by loan count) that were sourced by collapsing the prior NHLT 2018-1 transaction.

The notes offering includes $243.67 million in Class A notes with preliminary Aaa ratings from Moody’s.

The notes in the transaction are paid from proceeds from the sale of liquidated properties and insurance claim payments from the FHA. Moody’s noted this produced “irregular” cash flows into the deals, which will depend on local real estate markets and liquidation timelines. But the assets “are in various stages of seasoning which should smooth timing of funds coming into the deal.”

Reverse mortgages are loans issued to borrowers 62 or older to convert a portion their home equity into cash. Nationstar, which is controlled by Fortress Investment Group, acquired all of the loans from Ginnie Mae-sponsored securitizations. Loans become inactive or defaults if a borrower or their estate fail to pay the amount due upon maturity, after when the property is to be sold to recover the amount owed.

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