S&P Eyes Reverse Mortgage Deals

Standard & Poor's has announced that it will "closely monitor" S&P-rated securitizations that contain reverse mortgage loans as a result of the pending settlement of a class action lawsuit.The suit against Transamerica Corp. (the originator), Financial Freedom Senior Funding Corp. (the servicer), and Metropolitan Life Insurance Co. (the annuity provider) alleged that excessive fees and shared-appreciation costs were charged to borrowers or their heirs in connection with reverse mortgages, the rating agency said. Some reverse mortgages contain a shared-appreciation provision under which originators receive a share of any home value appreciation that occurs over the term of the mortgage, S&P noted. Moreover, the rating agency said, reverse mortgage originators "typically charge relatively high origination fees" because the period of expected repayment may be long and the origination process is usually "lengthy" compared with that for traditional mortgages. S&P said bond ratings are "not in jeopardy" because of the settlement, but that it will monitor further developments for "potential ratings implications." S&P can be found online at http://www.standardandpoors.com.