New York, January 11, 2012 -- Moody's Investors Service stated today that the appointment of or assignment
to U.S. Bank National Association (Aa2, negative outlook)
of certain duties as successor to Bank of America, National Association
(A2, negative outlook) will not, in and of itself, result
in the reduction or withdrawal of its current ratings on the securities
issued in the reverse mortgage backed ABS transactions listed below.
U.S. Bank will succeed Bank of America in maintaining the
collection account and assuming duties related to the collection accounts
for the affected ABS transactions.
This transfer of responsibility arises in connection with U.S.
Bank's December 2010 acquisition of Bank of America's securitization
trust administration business. Since that time, U.S.
Bank has been performing many of the related roles through a servicing
agreement it entered into with Bank of America, or directly with
respect to the administrative roles on which it has succeeded Bank of
America.
U.S. Bank requested that Moody's provide its opinion
as to whether the ratings on the Moody's-rated securities
issued in the affected transactions would be downgraded or withdrawn as
a result of U.S. Bank becoming Bank of America's successor
under the transactions' legal documents.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks have not been addressed, but may have
significant effect on yield and/or other payments to investors.
The affirmation of Moody's ratings should not be taken to imply that there
will be no adverse consequence for investors since in some cases such
consequences will not impact the rating. Further information on
the nature of credit ratings and Moody's rating methodologies can be found
at www.moodys.com.
In assessing the credit impact of the transfer, Moody's assessed
the credit quality of U.S. Bank and its experience in performing
similar roles for other transactions. Moody's rating view
was based primarily on its opinion that U.S. Bank is highly
rated, is a major provider of trust services, and on the fact
that U.S. Bank will be assuming substantially all of the
trust administration business, including many of the business'
staff and systems required to administer such business, from Bank
of America.
METHODOLOGY
A reverse mortgage allows senior homeowners (typically 62 years of age
or older) to borrow against the equity in their homes. With a reverse
mortgage, the lender makes payments to the borrowers in exchange
for the equity in the home. The payments, interest that accrues
on the payments, any additional draws by the borrower on his/her
available line of credit, and any fees or other advanced items are
added together to determine the loan balance at any given time.
Repayment of a reverse mortgage depends solely on receipts from the property
when the loan matures. A maturity event is triggered either by
a mortality event when the borrower(s) dies or by a mobility event when
the borrower(s) permanently moves out of the property. There is
no recourse to any other assets of the borrower or to the borrower's estate
for shortfalls.
The main drivers of credit risk for reverse mortgages therefore are property
values, interest rate, and maturity rate, i.e.,
the rate at which the maturity event will occur. Cash flows available
to investors depend on two fundamental factors, the timing of repayment
which is triggered by a "maturity event" and the net liquidation proceeds
from the sale of the property .
In order to derive the ratings, Moody's first defined economic scenarios
for the six rating levels (B2, Ba2, Baa2, A2,
Aa2 and Aaa) and then projected cashflows for each rating level for the
life of the deal. Monthly loan balances were calculated based on
the projected accrued interest and amounts drawn. Moody's then
applied the monthly maturity rate to determine the portion of the loan
that will be paid down each month. The net monthly cash flow proceeds
from each loan available to pay down the bonds was then calculated as
the minimum of the outstanding loan balance and the projected property
value net of liquidation costs. These proceeds were then applied
to the bonds per the deal structure, accounting for the reserve
fund available to absorb losses.
The ratings are sensitive to the assumptions on the key credit risk drivers.
A delay in repayment will increase accrued interest, but may not
negatively affect the deal if the repayment occurs during a period of
increasing house prices as additional liquidation proceeds may offset
the higher amount of accrued interest. Similarly, an early
repayment that will result in less accrued interest may negatively affect
the deal if the repayment coincides with a period of severe house price
decline.
The primary source of assumption uncertainty is the current macroeconomic
environment with a weak outlook on the housing market.
Other methodologies and factors that may have been considered in the process
of providing this opinion can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab.
Affected Transactions:
Mortgage Equity Conversion Asset Trust, Series 2006-SFG1
Mortgage Equity Conversion Asset Trust, Series 2006-SFG2
Mortgage Equity Conversion Asset Trust, Series 2006-SFG3
Mortgage Equity Conversion Asset Trust, Series 2007-FF1
Mortgage Equity Conversion Asset Trust, Series 2007-FF2
Mortgage Equity Conversion Asset Trust, Series 2007-FF3
Michael Labuskes
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: No negative ratings impact on MECA reverse mortgage ABS from transfer of duties
