Reverse Mortgage Loan Blog

Bank of America Merrill Lynch plans to sell a $92 million bond backed by troubled reverse mortgages insured by the federal government, according to a term sheet obtained by Reuters.

The bond is supported by 760 “home equity conversion” mortgages, or those in which the lender gives the older borrowers cash in return for equity in the home. The borrowers are all in distressed situations, including foreclosure.

The residential mortgage-backed security (RMBS) comes as Wall Street tries to revive a private-issuer market that has been largely shuttered since the financial crisis erupted in 2008. But just one of the handful of RMBS has been backed by new, standard mortgages that are needed to expand credit to U.S. homeowners.

Wall Street dealers in the past two months have also securitized distressed home loans held by Kondaur Capital Corp. and private equity giant Lone Star Funds. In such deals, the liquidation value supports the bonds.

BofA’s issue will be priced with an interest rate of 4 percent, with about 21 percent of the underlying collateral set aside as credit enhancement, or investor protection from loss, the term sheet said.

If proceeds from the sale of a property securing a reverse mortgage are insufficient to pay off the balance, a claim will be filed on the Federal Housing Administration insurance.

Found here.

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