This was a challenging year for most market participants, even for hedge fund managers, who tend to be more nimble operators than most. Waterfall was pleased with its performance throughout a highly disruptive 2020. “Waterfall continues to see new ABS investors entering the reverse mortgage market,” he adds, “and capital solutions like the CFMT deal will help build a more liquid market that has the potential to benefit issuers, investors, and borrowers.” “Balancing the reinvestment period for issuer and investors was mutually beneficial.” “Some of the inactive deals prepay really quickly and so there’s reinvestment risk,” says Geraghty. The investors, meanwhile, may benefit from a more stable duration profile. This allows Waterfall to fund additional eligible collateral for two years, investing in similar assets as repayments occur. “This deal was backed by what we believe are high quality assets, met with solid investor demand, and was syndicated to over 10 accounts.” The deal was also the first to consist entirely of active assets, and only the second securitization to include active assets, a departure from a market that has consisted largely of NPLs and inactive assets.Ī third feature that caught the market’s eye was the 24-month reinvestment period – a first for a transaction backed by home equity conversion mortgages which are reverse mortgages that are insured by the Federal Housing Administration. “The reverse mortgage sector was as resilient, or even more resilient, than broader structured markets throughout the pandemic, driven in part by the fact that reverse mortgage borrowers typically are not required to make principal and interest payments,” says Geraghty.
The $285.8m CFMT 2020-AB1, with Nomura as sole structuring agent and bookrunner, stood out in several ways. Reverse mortgage deals are relatively rare, but have become a specialty for Waterfall, which has issued 12 reverse mortgage securitizations since 2013 with over $5.4bn of collateral balance. The firm brought three RMBS deals to market in 2020 following the pandemic outbreak, but it was the Cascade Funding Mortgage Trust (CFMT) 2020-AB1 that was voted the stand-out deal of the year. The residential mortgage sector has been a core focus for the company since it was founded in 2005, says Tim Geraghty, Waterfall’s head of capital markets.
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