Moody's appraises public firms with reverse mortgage segments – ReverseMortgageDaily

August 18, 2022 By admin

The credit score scores company particularly seemed on the strengths and weaknesses of two companies, together with their industry-leading reverse mortgage divisions
Company credit standing company Moody’s Traders Service has launched up to date scores for 2 public firms which function reverse mortgage divisions, affirming its ranking for PHH Mortgage Company whereas downgrading its ranking for Finance of America Corporations (FOA). PHH and FOA are the father or mother firms of main reverse mortgage lenders Liberty Reverse Mortgage and Finance of America Reverse (FAR), respectively.
Moody’s discovered the ranking for PHH to be usually secure whereas noting extra threat for Finance of America. Nevertheless within the case of the latter, it additionally particularly cited the corporate’s reverse mortgage exercise as a profit to the group’s extra secure fundamentals when in comparison with its exercise on the ahead mortgage aspect, broadly noting that volatility throughout the mortgage {industry} has elevated.
PHH Mortgage Company is a subsidiary of Ocwen Monetary Companies, and had beforehand earned a Caa1 company household ranking (CFR) which as affirmed by Moody’s after the corporate’s newest quarterly earnings report.
“Obligations rated Caa are judged to be of poor standing and are topic to very excessive credit score threat,” in keeping with Moody’s long-term ranking definitions. Nevertheless, the ranking’s affirmation additionally comes with a change within the total outlook of the corporate from “secure” to “constructive,” and recognition that the corporate’s monetary place didn’t considerably deteriorate after posting powerful Q2 earnings.
“The affirmation of [PHH]’s scores displays the agency’s at the moment weak however bettering profitability and modest capital ranges,” Moody’s mentioned of the ranking. “[PHH]’s profitability has been weak due to a price construction supposed for a bigger servicing portfolio. Nevertheless, the corporate has considerably lowered prices. Moreover, its mortgage servicing rights’ (MSRs) three way partnership with Oaktree, its latest acquisitions to develop its lending and servicing companies, together with the extension of debt maturities, ought to present the agency with the means and the runway to develop its companies and enhance its profitability.”
Moody’s additionally included PHH’s stake within the reverse mortgage enterprise as a portion of the reasoning for its affirmed ranking.
“[PHH]’s modest reported capitalization is partly resulting from its inclusion of securitized Dwelling Fairness Conversion Mortgages (HECMs) and associated liabilities on its stability sheet, in accordance with US GAAP accounting requirements,” Moody’s mentioned in its announcement. “Whereas the corporate doesn’t personal the underlying belongings of the securitizations, as a servicer it’s required to repurchase the FHA-insured HECM mortgages from the Ginnie Mae swimming pools underneath sure circumstances. Moody’s views the credit score threat of securitized HECM loans to be modest because of the FHA insurance coverage, which carries the complete religion and credit score of the US authorities.”
By the tip of June, the corporate’s capital ranges had been “extra strong at 12.0%” when adjusting the capital ratio for reverse mortgage loans and securitizations on its stability sheet, the company defined.
“The change in [PHH]’s outlook to constructive from secure displays the progress the corporate is making in transitioning its technique to concentrate on originations and servicing of non-delinquent ahead and reverse mortgages from the servicing of critically delinquent loans, which ought to result in a extra resilient enterprise mannequin and extra secure earnings profile,” Moody’s defined.
For FOA, Moody’s downgraded the corporate’s ranking to a Caa2, marginally decrease than PHH’s new ranking and retaining the corporate in “non-investment grade” territory in keeping with Moody’s scores scale. Beforehand, FOA’s CFR stood at B2. Nevertheless, the outlook additionally modified from “damaging” to “secure,” in keeping with Moody’s.
“Over the subsequent 12 to 18 months, Moody’s expects FOA’s and the mortgage sector’s profitability to proceed to be challenged as increased rates of interest will lead to materially decrease origination volumes and {industry} extra capability will maintain gain-on-sale margins low,” Moody’s mentioned of its ranking rationale.
The change of outlook to “secure” additionally implies that Moody’s has acknowledged “a change within the working circumstances of the mortgage {industry} broadly,” it defined.
“The secure outlook displays Moody’s expectation that the corporate’s present scores replicate the difficult working circumstances within the mortgage sector that may proceed to stress FOA’s profitability, making it tough for the corporate to scale back its excessive monetary leverage over the subsequent 12-18 months,” the rationale reads.
Moody’s additionally particularly sees the reverse mortgage division of FOA as a proverbial feather in its cap, with higher profitability when in comparison with the ahead mortgage division.
“The secure outlook additionally acknowledges that FOA is among the top-three largest originators of reverse mortgages, a top-30 retail originator of residential mortgages, and a number one originator of fix-and-flip residential and single-family investor mortgages,” Moody’s mentioned. “Its worthwhile reverse mortgage enterprise represents a key differentiating constructive consider its enterprise combine and franchise.”
Each FOA and Ocwen Monetary every took time to emphasise the final power of their respective reverse mortgage enterprise in Q2 2022 earnings experiences and displays earlier this month.
Ocwen CEO Glen Messina mentioned the reputational perceptions of the reverse mortgage {industry} within the Q2 earnings presentation, with Ocwen believing they’re transferring in a constructive path regarding their potential as a instrument for retirement planning.
“We consider the legacy stigma is diminishing round reverse mortgages and [that the product] is changing into extra accepted as a retirement planning instrument,” he defined. “On this enterprise atmosphere, we’re targeted on a deliberate technique comprised of 5 initiatives to drive enterprise efficiency and ship worth for our shareholders.”
At FOA, interim CEO Graham Fleming talked about the corporate’s ongoing dedication to reverse mortgages resulting from a perceived unrealized potential within the section throughout that firm’s Q2 earnings name.
“These outcomes underscore not solely the huge market alternative, but additionally the necessity for better client schooling and consciousness to gas product adoption,” he mentioned. “We’re actively engaged on a strategic partnership to unlock a brand new origination channel that may goal reverse as an environment friendly monetary planning instrument. And we’re very excited in regards to the prospect of rising this over time.”
Learn the Moody’s experiences for PHH and FOA, respectively.
A panel at a latest commerce affiliation convention helps present an replace on the forthcoming HECM Handbook from FHA.
A panel at a latest commerce affiliation convention helps present an replace on the forthcoming HECM Handbook from FHA.
Reverse Mortgage Day by day (RMD) is the main supply for information and data overlaying the reverse mortgage {industry}. RMD is owned by HW Media.