Josh Funder
Australian non-bank lender Household Capital Pty Ltd has mandated Citi to market a potential AUD-denominated reverse mortgage securitisation deal.
The targeted issue size is A$249 million, although this can be increased "subject to investor interest" in the first ever securitisation from reverse mortgage specialist Household Capital.
If successful, the transaction will build on the $600 million in wholesale debt funding raised by Household Capital one year ago from IFM Investors, Citi and Pacific Equity Partners.
The amount likely to be raised, however, remains well short of the $1 billion-plus securitisation program mooted by Josh Funder, Household Capital founder and managing director.
Funder told Banking Day last year that his company's loan portfolio was growing at 50 per cent annually, and raising up to $10 billion of funding in coming years was possible.
The collateral pool backing the deal – 905 loans with a total current balance of almost $209 – represents a little over half of Household Capital's reverse mortgage portfolio, which stood at $417 million by June 2024, according to a Moody's pre-sale note.
Nevertheless, if the deal is successful, it will be the largest Australian reverse mortgage securitisation since Heartland Bank’s Australian arm launched a $142 million program in September 2020.
Household Capital was founded in 2017 and started originating loans in 2019.
Notably, Moody's Ratings has not rated a reverse mortgage securitisation deal in Australia. It did, however, assign provisional ratings to the two tranches of notes backed by a pool of reverse mortgages originated by Household Capital.
The notes that will be issued as the Household Capital 2024-1 RMBS Trust will be rated as follows:
• $212.0 million Class A Notes, Assigned (P)Aa3 (sf)
• $37.0 million Class B Notes, Assigned (P)A2 (sf)
Moody's reported that this transaction benefits from various credit strengths such as the portfolio's low weighted average loan to value of 24.0 per cent.
"There is also no reliance on borrower credit quality, given reverse mortgages do not require ongoing payments of interest or principal by the borrower," Moody's stated.
Among the credit weaknesses highlighted by Moody's were that Household Capital is a relatively new originator, with historical discharge data only available from 2019, as well as the irregular timing of asset cashflows. That is, reverse mortgage loans do not redeem until after the death or morbidity event (for example, moving into long-term care) of the borrower, or when a borrower moves out of the property or chooses to make a prepayment.
Other key pool features:
• The portfolio has a weighted average LTV of 24.0 per cent, and a weighted average seasoning of just 24.3 months.
• Borrowers in the portfolio have a weighted average age of 75 years, with ages ranging from 60 to 97 years.
• Approximately 50.1 per cent of the loans in the portfolio are joint accounts, 49.2 per cent are single borrowers and 0.7 per cent are in the liquidation process following borrowers' mortality events.
The arranger and sole lead manager is Citi.
In a note to its wholesale investor clients, Citi gave pricing guidance in the order of 225 basis points and 325 bps over 3-month BBSW for the Class A Notes and Class B-notes, respectively.
The transaction is expected to price as early as Thursday 11 July 2024.