Bank of America Conducts Private Placement

BofA HECM securitization notes merit double-A from Standard & Poor’s

In the first deal of its kind since the recession began in August 2007, Mortgage Equity Conversion Asset Trust Corp. recently sold $116.5 million of reverse mortgage notes in a private placement lead by Bank of America Merrill Lynch.

The notes are supported by 756 Federal Housing Administration-insured, home-equity conversion mortgages, with a total outstanding balance of $107.6 million, according to credit rating agency Standard and Poor’s, which assigned a AA rating to the $92 million of senior notes. The roughly $24.5 million of subordinate notes weren’t rated in the private placement.

Analysts said credit strengths include characteristics of the collateral, due diligence results provided by Clayton Services, and “representations and warranties made by the seller and the related remedies, and the transaction’s internal and external credit enhancement.”

The collateral pool includes 716 loans that are in technical default because of delinquent taxes and insurance, repair or maintenance issues, or occupancy problems, according to Standard & Poor’s.

Analysts also said the remaining 40 mortgages are document deficient. Borrowers don’t repay HECMs until the loan matures, but often run afoul when property taxes and insurance premiums are not paid.

Reverse Mortgage Solutions is servicing nearly half of the notes, while Financial Freedom Acquisition and Bank of America Home Loans Servicing split the remainder.

Financial Freedom originated around a quarter of the reverse mortgages, as did Seattle Mortgage. World Alliance Financial originated nearly half and BofA a little more than one percent.

The credit risk officer is Wells Fargo.

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