Private-label mortgage-backed securities filled with reverse mortgages in California have been downgraded because of an increase in expected liquidations at a time when home values have deteriorated.
Word of the downgrades came Tuesday from Moody’s Investors Service.
According to the New York-based ratings agency, ongoing weakness in the housing market along borrower demographics are hindering the outlook for reverse mortgages.
As a result, Moody’s downgraded the ratings on six mortgage bonds issued by Structured Assets Securitization Corp. in 2005, 2006 and 2007.
The SASCO transactions are mostly backed by first-lien, non-recourse and uninsured reverse mortgage loans. The properties securing the loans are concentrated in California — where home values have plummeted 40 percent since 2006 and are expected to decline another 5 percent during the next year.
Moody’s explained that bond repayments are dependent on proceeds from home sales.
Driving the sales is the mortality rate.
“Given the age profile of these borrowers, we expect a large percentage of maturities to occur over the next five years, when the housing market is weak,” Moody’s stated. “As a result, cash-flows to the bonds are expected to be negatively impacted, resulting in increased potential for losses to the bonds.”
