RMF-backed proprietary securitization undergoing further review

A securitization of private reverse mortgages originated by Reverse Mortgage Funding (RMF) will require additional review due to the lender’s 2022 bankruptcy, according to a statement on the securitization issued by credit rating agency KBRA.

“RMF Proprietary Issuance Trust 2019-1 (RPIT 2019-1),” which saw ratings assigned by DBRS Morningstar in mid-2020, has a key indenture deadline approaching that requires the additional review. The securitization features loans originated by RMF, which declared bankruptcy in late 2022.

“The terms of the indenture stipulate that the issuer provide a notice of its intent to either exercise an optional redemption or conduct an asset auction by December 24, 2024,” KBRA said in its comment on the securitization. “Given RMF’s bankruptcy, no such notice was provided. In the comment, KBRA discusses a number of possible scenarios and their potential impact on the payment waterfall, depending on whether, and how, controlling noteholders direct the indenture trustee.”

Many of the mortgage servicing rights (MSRs) to the loans inside the securitization were acquired by Longbridge Financial following RMF’s bankruptcy, the notice said, and day-to-day servicing responsibilities are being handled by Celink. KBRA added that it will “continue to monitor” the securitization under its stated reverse mortgage securitization methodology.

While the loans in this securitization are proprietary, RMF’s status as a Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) issuer was extinguished by Ginnie Mae shortly after the company declared bankruptcy.

That marked the first time Ginnie Mae had ever exercised its authority to extinguish an issuer from the HMBS program. The move later caused the U.S. Department of Housing and Urban Development (HUD)’s Office of the Inspector General (OIG) to open an inquiry into the situation that led to the decision.

A liquidity crisis in the reverse mortgage secondary market followed, causing Ginnie Mae to assume control of the RMF portfolio of HECM loans. In January 2024, Ginnie Mae announced it would develop a complementary HMBS program to address industry liquidity issues, culminating in the November 2024 release of a final term sheet for the program known as “HMBS 2.0”.

But the recent political transition to the second administration of President Donald Trump could create roadblocks to implementing the program, according to recent executive orders issued by Trump and staffing issues at Ginnie Mae.