KBRA Affirms Ratings for 16 Finance of America Reverse Mortgage Transactions

KBRA has reviewed the ratings assigned to 16 Finance of America proprietary reverse mortgage transactions, resulting in 31 rating affirmations. The related transactions are listed below with links to their transaction pages which show the applicable rating actions. The affirmations reflect generally stable collateral and structure performance, as evidenced by increased credit support for rated classes and minimal losses since issuance. In performing these rating actions, KBRA considered underlying collateral performance, changes to the age and gender composition of the pools, changes to the values of the properties as a result of home price index movements, changes to the loan balances as interest accruals are added to the loan principal balances over time, deal structure and credit enhancement levels. The rating actions, along with related deal and tranche performance information, are available in spreadsheet form in the accompanying KBRA Supplemental Ratings Data file.

KBRA performed its analysis in accordance with its Reverse Mortgage Securitisation Global Rating Methodology. KBRA has analyzed the transactions through its KBRA Reverse Mortgage Analytical Tool and KBRA generally utilized the same set of asset analysis stress assumptions and cash flow scenarios described within our new issue rating report – specifically relating to home price decline stresses and timing, age setbacks, and liquidation assumptions. With respect to assumptions relating to interest rate stresses and prepayment assumptions, KBRA’s analysis may incorporate updated assumptions depending on observed rates. For transactions with floating rate collateral or notes, KBRA’s cash flow analysis incorporated interest rate stress scenarios for each rating level which test rating sensitivity to rates remaining flat, increasing, or decreasing.

KBRA has observed lifetime all-in prepayment rates for the related transactions ranging between approximately 4.6% and 14.8%, and 3 Month CPRs are ranging between approximately 3.9% and 16.7%. Based on the originator’s loan originations and historical performance, KBRA evaluated each transaction utilizing two scenarios of flat lifetime non-mortality repayment rates at 2% and at 7%. In addition, for certain transactions which do not allow for reinvestment in new assets when prepayments exceed a defined schedule, KBRA also considered cash flow sensitivity scenarios where we applied additional elevated repayment rates that increase to peak rates of 40% in our ‘AA’ stress scenarios and higher than 40% in our ‘AAA’ stress scenarios. After these peak rates, both stress scenario curves return to a flat rate of 15%.

We note that, in general, these reverse mortgage assets and liabilities can have long weighted average lives and structural features that provide for changes in payment priority over time. Accordingly, KBRA often considers these factors when determining the extent of rating actions. In particular, the subject transactions are relatively unseasoned in the context of their final maturity dates. In addition, the transactions all contain triggers which can cause the payment priority to switch from pro-rata to sequential and in some cases, affect certain class’ interest entitlements. These structural features can create scenarios where more benign stress assumptions permit leakage of payments to subordinate classes, diminishing the rate of pay down of more senior classes, and potentially resulting in losses where more stressful scenarios would not. KBRA considered its scenario and cash flow analysis, in conjunction with the considerations noted above, and deemed that the notes were able to withstand their applicable rating stress within acceptable tolerances.

For additional information regarding a specific transaction, see the list below to access ratings, reports, and disclosures:

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