New York, February 13, 2020 -- Moody's Investors Service, ("Moody's") has
assigned provisional ratings to five classes of residential mortgage-backed
securities (RMBS) issued by Finance of America HECM Buyout (FAHB) 2020-HB1.
The ratings range from (P)Aaa (sf) to (P)B3 (sf).
The certificates are backed by a pool that includes 1,766 inactive
home equity conversion mortgages (HECMs) and 198 real estate owned (REO)
properties. The servicer for the deal is Finance of America Reverse
LLC (FAR). The complete rating actions are as follows:
Issuer: Finance of America HECM Buyout 2020-HB1
Cl. A, Assigned (P)Aaa (sf)
Cl. M1, Assigned (P)Aa3 (sf)
Cl. M2, Assigned (P)A3 (sf)
Cl. M3, Assigned (P)Baa3 (sf)
Cl. M4, Assigned (P)B3 (sf)
The collateral backing FAHB 2020-HB1 consists of first-lien
inactive HECMs covered by Federal Housing Administration (FHA) insurance
secured by properties in the US along with Real-Estate Owned (REO)
properties acquired through conversion of ownership of reverse mortgage
loans that are covered by FHA insurance. If a borrower or their
estate fails to pay the amount due upon maturity or otherwise defaults,
the sale of the property is used to recover the amount owed. FAR
acquired the mortgage assets from Ginnie Mae sponsored HECM mortgage backed
(HMBS) securitizations. All of the mortgage assets are covered
by FHA insurance for the repayment of principal up to certain amounts.
There are 1,964 mortgage assets with a balance of $373,912,149.
The assets are in default, due and payable, bankruptcy,
foreclosure or REO status. Loans that are in default may move to
due and payable; due and payable loans may move to foreclosure;
and foreclosure loans may move to REO. 24.3% of the
assets are in default of which 0.3% (of the total assets)
are in default due to non-occupancy, 23.3%
(of the total assets) are in default due to taxes and insurance.
16.4% of the assets are due and payable, 43.1%
of the assets are in foreclosure and 6.1% were in bankruptcy
status. Finally, 10.1% of the assets are REO
properties and were acquired through foreclosure or deed-in-lieu
of foreclosure on the associated loan. If the value of the related
mortgaged property is greater than the loan amount, some of these
loans may be settled by the borrower or their estate.
In addition, there are 168 loans that are Optional Delay Mortgages
in the pool (7.6% by asset balance), that have remained
in the same liquidation status since the first half of 2018 or earlier.
Based on HUD rules, servicers may delay calling loans due and payable
if the total amount owed for missed taxes and insurance is less than $2,000
and meet certain criteria. We believe such loans could remain in
the pool for a significant period of time without liquidating and may
experience large losses, in cases where UPB is greater than MCA,
if they eventually cure and get assigned to HUD. HUD only reimburses
mortgagees up to 100% of the MCA no matter what the UPB is when
the loan becomes eligible for assignment to HUD. Therefore,
if the UPB is greater than the MCA at the time of assignment, there
will be a loss. This risk is present in all inactive HECMs but
is a particular concern for Optional Delay Mortgages because these loans
are likely to cure from default only after a significant delay,
at which point their UPB could be far greater than their MCA due to negative
It is highly likely that such loans will not proceed to foreclosure and
that the loans will not be liquidated until the borrower or borrowers
die. As such, there is a significant likelihood that no proceeds
will be received on certain of these loans within the ten year stated
final maturity of the transaction. Due to the high likelihood that
no proceeds will be received for Optional Delay Mortgages within the next
10 years, we did not give credit to such loans in our rating analysis.
Compared to other inactive HECM transactions rated by Moody's, FAHB
2020-HB1 has a significantly higher concentration of mortgage assets
in Puerto Rico at 23.2%. Puerto Rico HECMs pose additional
risk due to the poor state of the Puerto Rico economy, the uncertainty
in the housing market, the aftermath of Hurricane Maria that led
to a population outflow, and the bureaucratic foreclosure process.
In addition, Puerto Rico has a tax exoneration policy that exempts
many seniors from property taxes. Due to the territory's bureaucratic
tax exoneration process, it may require a significant amount of
time to liquidate Puerto Rico HECMs with tax delinquencies. In
addition, there has been a three month moratorium placed on mortgage
loans in light of the series of earthquakes that occurred in December
2019 and January 2020. We applied additional stress in our analysis
to account for the risk posed by properties in Puerto Rico.
Although FAHB 2020-HB1 is similar to FASST 2019-HB1,
there are some key differences.
• At least 2.9% of the UPB is expected to be deposited
into the trust by the seller as of the closing due to pre-closing
collections and prepayments. We took this into consideration in
our cash-flow assumptions.
• Servicing fee of $50 per month per mortgage loan will be
paid to the servicer on top of the waterfall before payment to the noteholders.
Of note, in FASST 2019-HB1 transaction servicing fee was
subordinated to payments to the noteholders. We believe that the
subordination of servicing fees along with servicing advances and MIP
payments helps to align the interests of deal parties and the investors.
Even though servicing fee will be paid on top of the waterfall,
we believe the subordination of servicing advances and MIP payments will
still be significant to ensure alignment of interest.
• Workout incentive amount: With respect to mortgage loans
and REO properties that are located in Puerto Rico, approximately
13.76% of the collections in each period will first be used
to reimburse the servicer for servicing advances and principal advances
and any remaining amount will be included in the available funds.
This feature will further reduce the economic subordination of the servicer.
However, we believe that the workout incentive amount will not be
sufficient to reimburse all advances and a significant portion of advances
will still be subordinated. On the other hand, this feature
would to some extent serve as an incentive to workout the Puerto Rico
loans at the earliest in order for the servicer to have their advances
reimbursed. As of the cut-off date, the total workout
incentive amount is about 3.2% of the total UPB.
Of note, we took into consideration significant Puerto Rico concentration
and increased our rating stresses for Puerto Rico loans.
• In December 2019 and January 2020 a series of earthquakes occurred
in Puerto Rico. Approximately 95 of the mortgaged properties are
located in geographic regions that have been identified by FEMA as affected
by such earthquakes as of February 5, 2020. The servicer
had ordered post disaster inspection (PDI) report on 53 properties as
of February 4, 2020, and no damages were identified on 52
out of 53 properties. One property had damage reported but the
damage was covered in full by a hazard insurance policy. For all
other properties identified by FEMA, the servicer will order PDI
within six months from the closing date. The seller will make an
indemnity payment or will be obligated to cure if damages are reported
in the PDI, and such properties are not covered by full insurance
and the damages will adversely affect the value or marketability of the
Our credit ratings reflect state-specific foreclosure timeline
stresses as well as potential extended timelines for loans in bankruptcy.
Finance of America Reverse LLC (FAR) will be the named servicer under
the sale and servicing agreement. FAR has the necessary processes,
staff, technology and overall infrastructure in place to effectively
oversee the servicing of this transaction. FAR will use Compu-Link
Corporation, d/b/a Celink (Celink) as sub-servicer to service
the mortgage assets. Based on an operational review of FAR,
it has strong sub-servicing monitoring processes, a seasoned
servicing oversight team and direct system access to the sub-servicer
The securitization has a sequential liability structure amongst six classes
of notes with structural subordination. All funds collected,
prior to an acceleration event, are used to make interest payments
to the notes, then principal payments to the Class A notes,
then to a redemption account until the amount on deposit in the redemption
account is sufficient to cover future principal and interest payments
for the subordinate notes up to their expected final payment dates.
The subordinate notes will not receive principal until the beginning of
their respective target amortization periods (in the absence of an acceleration
event). The notes benefit from structural subordination as credit
enhancement and an interest reserve account for liquidity and credit enhancement.
The transaction is callable on or after six months with a 1.0%
premium and on or after 12 months without a premium. The mandatory
call date for the Class A notes is in Feburary 2022. For the Class
M1 notes, the expected final payment date is in June 2022.
For the Class M2 notes, the expected final payment date is in October
2022. For the Class M3 notes, the expected final payment
date is in Feburary 2023. For the Class M4 notes, the expected
final payment date is in August 2023. For the Class M5 notes,
the expected final payment date is in June 2024. For each of the
subordinate notes, there are various target amortization periods
that conclude on the respective expected final payment dates. The
legal stated maturity of the transaction is 10 years.
Available funds to the transaction are expected to primarily come from
the liquidation of REO properties and receipt of FHA insurance claims.
These funds will be received with irregular timing. In the event
that there are insufficient funds to pay interest in a given period,
the interest reserve account may be utilized. Additionally,
any shortfall in interest will be classified as a cap carryover.
These cap carryover amounts will have priority of payments in the waterfall
and will also accrue interest at the respective note rate.
Certain aspects of the waterfall are dependent upon FAR remaining as servicer.
Servicing fees and servicer related reimbursements are subordinated to
interest and principal payments while FAR is servicer. However,
servicing advances (i.e. taxes, insurance and property
preservation) will instead have priority over interest and principal payments
in the event that FAR defaults and a new servicer is appointed.
The transaction provides a strong mechanism to ensure continuous advancing
for the assets in the pool. Specifically, if the servicer
fails to advance and such failure is not remedied for a period of 15 days,
the sub-servicer can fund their advances from collections and from
an interim advancing reserve account. Given the significant amount
of advancing required to service inactive HECMs with tax delinquencies,
this provision helps to minimize operational disruption in the event FAR
encounters financial difficulties.
Our analysis considers the expected loss to investors by the legal final
maturity date, which is ten years from closing, and not by
certain acceleration dates that may occur earlier. We noted the
presence of automatic acceleration events for failure to pay the Class
A notes by the Class A mandatory call date, failure to pay the classes
of Class M notes by their expected final payment dates, and the
failure to pay the classes of Class M notes their targeted amortization
amounts. The occurrence of any of these acceleration events would
not by itself lead us to bring the outstanding rating to a level consistent
with impairment, because such event would not necessarily be indicative
of any economic distress. Furthermore these acceleration events
lack effective legal consequences other than changing payment priorities
and interest rates, which are modeled in our analysis. Liquidation
of the collateral would require 100% consent of any class of notes
that would not be paid in full.
Similar to FASST 2019-HB1 deal, in FAHB 2020-HB1 a
firm of independent accountants or a due-diligence review firm
experienced in validation and auditing of reporting of similar assets
(the verification agent) will perform quarterly procedures with respect
to the monthly servicing reports delivered by the servicer to the trustee.
These procedures will include comparison of the underlying records relating
to the subservicer's servicing of the loans and determination of the mathematical
accuracy of calculations of loan balances stated in the monthly servicing
reports delivered to the trustee. Any exceptions identified as
a result of the procedures will be described in the verification agent's
report. To the extent the verification agent identifies errors
in the monthly servicing reports, the servicer will be obligated
to correct them.
A third party firm conducted a review of certain characteristics of the
mortgage assets on behalf of FAR. The review focused on data integrity,
FHA insurance coverage verification, accuracy of appraisal recording,
accuracy of occupancy status recording, borrower age documentation,
identification of excessive corporate advances, documentation of
servicer advances, and identification of tax liens. Also,
broker price opinions (BPOs) were ordered for 293 properties in the pool.
The TPR firm conducted an extensive data integrity review. Certain
data tape fields, such as the MIP rate, the current UPB,
current interest rate, and marketable title date were reviewed against
FAR's servicing system. However, a significant number of
data tape fields were reviewed against imaged copies of original documents
of record, screen shots of HUD's HERMIT system, or HUD documents.
Some key fields reviewed in this manner included the original note rate,
the debenture rate, foreclosure first legal date, and the
called due date.
We accounted for the additional risk in our analysis associated with taxes
and insurance exceptions and the foreclosure and bankruptcy fee exceptions.
Reps & Warranties (R&W)
FAR is the loan-level R&W provider and is unrated. This
risk is mitigated by the fact that a third-party due diligence
firm conducted a review on the loans for evidence of FHA insurance.
FAR represents that the mortgage loans are covered by FHA insurance that
is in full force and effect. FAR provides further R&Ws including
those for title, first lien position, enforceability of the
lien, regulatory compliance, and the condition of the property.
FAR provides a no fraud R&W covering the origination of the mortgage
loans, determination of value of the mortgaged properties,
and the sale and servicing of the mortgage loans. Although certain
representations are knowledge qualified, the transaction documents
contain language specifying that if a representation would have been breached
if not for the knowledge qualifier then FAR will repurchase the relevant
asset as if the representation had been breached.
Upon the identification of an R&W breach, FAR has to cure the
breach. If FAR is unable to cure the breach, FAR must repurchase
the loan within 90 days from receiving the notification. We believe
the absence of an independent third party reviewer who can identify any
breaches to the R&W makes the enforcement mechanism weak in this transaction.
Also, FAR, in its good faith, is responsible for determining
if a R&W breach materially and adversely affects the interests of
the trust or the value the collateral. This creates the potential
for a conflict of interest.
When analyzing the transaction, we reviewed the transaction's exposure
to large potential indemnification payments owed to transaction parties
due to potential lawsuits. In particular, we assessed the
risk that the acquisition trustee would be subject to lawsuits from investors
for a failure to adequately enforce the R&Ws against the Seller.
We believe that FAHB 2020-HB1 is adequately protected against such
risk in part because a third-party data integrity review was conducted
on a significant random sample of the loans. In addition,
the third-party due diligence firm verified that all of the loans
in the pool are covered by FHA insurance.
The acquisition and owner trustee for the FAHB 2020-HB1 transaction
is Wilmington Savings Fund Society, FSB. The paying agent
and cash management functions will be performed by U.S.
Bank National Association. U.S. Bank National Association
will also serve as the claims payment agent and as such will be the HUD
mortgagee of record for the mortgage assets in the pool.
The methodologies used in these ratings were " Non-Performing and
Re-Performing Loans Securitizations Methodology" published in January
2020 and " Reverse Mortgage Securitizations Methodology" published in
November 2019. Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Our quantitative asset analysis is based on a loan-by-loan
modeling of expected payout amounts and timing of payouts given the structure
of FHA insurance and with various stresses applied to model parameters
depending on the target rating level. However, the modeling
assumptions are different for the Puerto Rico portion of the pool and
the portion of the pool that are in bankruptcy.
FHA insurance claim types: Funds come into the transaction primarily
through the sale of REO properties and through FHA insurance claim receipts.
There are uncertainties related to the extent and timing of insurance
proceeds received by the trust due to the mechanics of the FHA insurance.
HECM mortgagees may suffer losses if a property is sold for less than
its appraised value.
The amount of insurance proceeds received from the FHA depends on whether
a sales based claim (SBC) or appraisal based claim (ABC) is filed.
SBCs are filed in cases where the property is successfully sold within
the first six months after the servicer has acquired it. ABCs are
filed six months after the servicer has obtained marketable title if the
property has not yet been sold. For an SBC, HUD insurance
will cover the difference between (i) the loan balance and (ii) the higher
of the sales price and 95.0% of the latest appraisal,
with the transaction bearing losses if the sales price is lower than 95.0%
of the latest appraisal. For an ABC, HUD only covers the
difference between the loan amount and 100% of the appraised value,
so failure to sell the property at the appraised value results in loss.
We expect ABCs to have higher levels of losses than SBCs. The fact
that there is a delay in the sale of the property usually implies some
adverse characteristics associated with the property. FHA insurance
will not protect against losses to the extent that an ABC property is
sold at a price lower than the appraisal value taken at the six month
mark of REO. Additionally, ABCs do not cover the cost to
sell properties (broker fees) while SBCs do cover these costs.
For SBCs, broker fees are reimbursable up to 6.0%
ordinarily. Our base case expectation is that properties will be
sold for 13.5% less than their appraisal value for ABCs.
To make this assumption, we considered industry data and the historical
experience of FAR. We stressed this percentage at higher credit
rating levels. In a Aaa scenario, we assumed that these ABC
appraisal haircuts could reach up to 30.0%.
In our asset analysis, we also assumed there would be some losses
for SBCs, albeit lower amounts than for ABCs. Based on historical
performance, in the base case scenario we assumed that SBCs would
suffer 1.0% losses due to a failure to sell the property
for an amount equal to or greater than 95.0% of the most
recent appraisal. We stressed this percentage at higher credit
rating levels. In a Aaa scenario, we assumed that SBC appraisal
haircuts could reach up to 11.0% (i.e.,
6.0% below 95.0%).
Under our analytical approach, each loan is modeled to go through
both the ABC and SBC process with a certain probability. Each loan
will thus have both ABC and SBC sales disposition payments and associated
insurance payments (four payments in total). All payments are then
probability weighted and run through a modeled liability structure.
We considered industry data and the historical experience of FAR in our
analysis. For the base case scenario, we assumed that 85%
of claims would be SBCs and the rest would be ABCs. We stressed
this assumption and assumed higher ABC percentages for higher rating levels.
At a Aaa rating level, we assumed that 85% of insurance claims
would be submitted as ABCs.
Liquidation process: Each asset is categorized into one of four
categories: default, due and payable, foreclosure and
REO. In our analysis, we assume loans that are in referred
status to be either in the foreclosure or REO category. The loans
are assumed to move through each of these stages until being sold out
of REO. We assumed that loans would be in default status for six
to nine months depending on the default reason. Due and payable
status is expected to last six to 12 months depending on the default reason.
REO disposition is assumed to take place in six months for SBCs and 12
months for ABCs.
The timeline for foreclosure status is based on the state in which the
related property is located. To arrive at the base case foreclosure
timeline, we considered the FHA foreclosure diligence time frames
(per HUD guidelines as of February 5, 2016). We stress state
foreclosure timelines by a multiplicative factor for various rating levels
(e.g., state foreclosure timelines are multiplied
by 1.6x for our Aaa level rating stress).
Debenture interest: The receipt of debenture interest is dependent
upon performance of certain actions within certain timelines by the servicer.
If these timeline and performance benchmarks are not met by the servicer,
debenture interest is subject to curtailment. Our base case assumption
is that 90.0% of debenture interest will be received by
the trust. We stressed the amount of debenture interest that will
be received at higher rating levels. Our debenture interest assumptions
reflect the requirement that FAR reimburse the trust for debenture interest
curtailments due to servicing errors or failures to comply with HUD guidelines.
However, the transaction documents do not specify a required time
frame within which the servicer must reimburse the trust for debenture
interest curtailments. As such, there may be a delay between
when insurance payments are received and when debenture interest curtailments
are reimbursed. Our debenture interest assumptions take this into
consideration. Our assumption for recovered debenture interest
is low compared to prior FASST transactions due to the relatively high
percentage of missed servicing milestone mortgage assets in the pool.
Additional model features: We incorporated certain additional considerations
into our analysis, including the following:
• In most cases, the most recent appraisal value was used as
the property value in our analysis. However, for seasoned
appraisals we applied a 15.0% haircut to account for potential
home price depreciation between the time of the appraisal and the cut-off
• Mortgage loans with borrowers that have significant equity in their
homes are likely to be paid off by the borrowers or their heirs rather
than complete the foreclosure process. We estimated which loans
would be bought out of the trust by comparing each loan's appraisal value
(post haircut) to its UPB.
• We assumed that foreclosure costs will average $4,500
per loan, two thirds of which will be reimbursed by the FHA.
We then applied a negative adjustment to this amount based on the TPR
• We estimated monthly tax and insurance advances based on cumulative
tax and insurance advances to date.
We also ran additional stress scenarios that were designed to mimic expected
cash flows in the scenario where FAR is no longer the servicer.
We assumed the following in such a scenario:
• Servicing advances and servicing fees: while FAR subordinates
their recoupment of servicing advances, servicing fees, and
MIP payments; a replacement servicer will not subordinate these amounts.
• FAR indemnifies the trust for lost debenture interest due to servicing
errors or failure to comply with HUD guidelines. In an event of
bankruptcy, FAR will not have the financial capacity to do so.
• One third of foreclosure costs will be removed from sales proceeds
to reimburse a replacement servicer for such advances (one third of foreclosure
costs are not reimbursable under FHA insurance). This is typically
on the order of $1,500 per loan.
Furthermore, to account for risks posed by Puerto Rico loans,
we considered the following for mortgage assets backed by properties in
• To account for delays in the foreclosure process in Puerto Rico
due to the hurricanes, we used five years as our full stress foreclosure
timeline and scaled the impact down the rating levels.
• We assumed that all insurance claims would be submitted as ABCs
under our Aaa rating stress and scaled this percentage down at lower rating
levels. In addition, for ABCs we assumed that properties
will sell for significantly lower than their appraised values.
• Due to the significant Puerto Rico concentration for this transaction,
we also applied haircuts to the modeled cash flows for Puerto Rico mortgage
To account for potential extension of timelines due to Chapter 13 bankrupt
loans, we extended the foreclosure timeline by an additional 24
months in the base case scenario and scaled this extension up for higher
Factors that would lead to an upgrade or downgrade of the ratings:
Levels of credit protection that are higher than necessary to protect
investors against current expectations of stress could drive the ratings
up. Transaction performance depends greatly on the US macro economy
and housing market. Property markets could improve from our original
expectations resulting in appreciation in the value of the mortgaged property
and faster property sales.
Levels of credit protection that are insufficient to protect investors
against current expectations of stresses could drive the ratings down.
Transaction performance depends greatly on the US macro economy and housing
market. Property markets could deteriorate from our original expectations
resulting in depreciation in the value of the mortgaged property and slower
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
Further information on the representations and warranties and enforcement
mechanisms available to investors are available on http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_1214310
In rating this transaction, Moody's used a cash flow model
to model cash flow stress scenarios to determine the extent to which investors
would receive timely payments of interest and principal in the stress
scenarios, given the transaction structure and collateral composition.
Moody's quantitative analysis entails an evaluation of scenarios
that stress factors contributing to sensitivity of ratings and take into
account the likelihood of severe collateral losses or impaired cash flows.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Siva Ranjani Mettapalayam Pannir Selvam
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Vice President - Senior Analyst
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653