The methodology sets out the approach that ARC takes to analysing securitisations of reverse mortgages, being mortgage loans which are principally due and payable upon mortality events affecting the borrowers. This type of loan typically takes the form of a first-ranking mortgage secured on a borrower’s primary residence, and is granted to borrowers fulfilling minimum age conditions, typically being retirees. This type of product allows a borrower to release equity in their home whilst continuing to reside there until death or another event following which the home is no longer needed. Such loans are usually limited recourse to the property, and borrowers do not usually have ongoing payment obligations, meaning that the main risks to analyse are mortality rates, other sources of redemption such as prepayment and morbidity, and the development of property prices over the term of the transaction.
This is a new methodology used by ARC Ratings and will be subject to public commentary until 7 September 2023. We encourage interested market participants to submit their written comments to email@example.com.