Ellington Financial Inc. Completes Proprietary Reverse Mortgage Loan Securitization

Rhea-AI Summary

Ellington Financial Inc. (EFC) closes a $208 million securitization backed by proprietary reverse mortgage loans originated by Longbridge Financial. Morningstar DBRS rates the senior tranches AAA(sf). Company retains certain tranches and the option to call the securitization.

Insights

Financial Analyst

The closing of a $208 million securitization by Ellington Financial Inc. signifies a strategic move in capital management. The securitization process allows the company to convert illiquid assets into a more liquid form, thus enhancing their financial flexibility. By backing the securitization with reverse mortgage loans, the company is tapping into a niche market with a unique risk-return profile.

The AAA(sf) rating assigned to the senior tranches by Morningstar DBRS indicates a high level of confidence in the credit quality of the underlying assets. This can be attractive to investors seeking stable, investment-grade securities. However, the retention of certain tranches as per credit risk retention rules suggests that Ellington is maintaining skin in the game, aligning their interests with those of the investors.

The option to call the securitization post-redemption date provides Ellington with strategic leeway to manage the securitization based on market conditions and their capital needs. Overall, this securitization could signal a positive outlook for Ellington's financial health and might influence the market's perception of the company's stock.

Risk Management Expert

Securitization inherently involves a transfer of risk from the originator to the investors. In the case of proprietary reverse mortgage loans, the risk profile is distinct due to the nature of the borrowers and the real estate market's volatility. The retention of certain tranches by Ellington Financial indicates a deliberate risk management strategy to ensure compliance with credit risk retention rules, which can be seen as a commitment to maintaining a quality loan pool.

Investors should be aware that while the senior tranches have received AAA(sf) ratings, indicating low credit risk, the performance of these securities is still contingent upon the borrowers' ability to meet their obligations and the stability of the housing market. The servicer, Longbridge Financial, plays a critical role in managing these loans and their continued involvement post-securitization is essential to maintain the integrity of the servicing process.

Market Research Analyst

The securitization market for reverse mortgages is not as large or liquid as other mortgage-backed securities. This move by Ellington Financial could be indicative of an attempt to create more liquidity in this sector and potentially stimulate broader investor interest. The choice of Longbridge Financial to continue servicing the loans is strategic, as it leverages existing operational capabilities and market knowledge.

Market response to such securitizations can vary, but the AAA(sf) ratings could bolster investor confidence. However, it remains essential to monitor how the market absorbs this new issuance and whether it leads to a re-rating of Ellington's own credit profile. The impact on the stock price will likely depend on investor appetite for reverse mortgage-backed securities and the overall market conditions at the time of issuance and beyond.

OLD GREENWICH, Conn.--(BUSINESS WIRE)-- Ellington Financial Inc. (NYSE: EFC) (the "Company") today announced the closing of a $208 million securitization backed by a pool of proprietary reverse mortgage loans, all of which were originated by Longbridge Financial, LLC, a subsidiary of the Company. Longbridge will also continue to serve as the servicer of the mortgage loans underlying the securitization.

The debt tranches issued in the securitization were rated by Morningstar DBRS, with the seniormost tranches receiving AAA(sf) ratings. The Company retained certain tranches of the securitization in compliance with credit risk retention rules, and also retained the option to call the securitization at any time following the optional redemption date.

About Ellington Financial

Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage loans and mortgage-backed securities, reverse mortgage loans, mortgage servicing rights and related investments, consumer loans, asset-backed securities, collateralized loan obligations, non-mortgage and mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments. Ellington Financial is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C.

About Longbridge Financial

Longbridge is engaged in the business of originating, purchasing, selling and servicing home equity conversion mortgage loans (“HECMs”). Longbridge is approved as a Title II, non-supervised direct endorsement mortgagee with the U.S. Department of Housing and Urban Development and is an approved issuer of HECM-backed mortgage backed securities. Longbridge also originates and services non-FHA guaranteed proprietary reverse mortgage loan products, typically jumbo loans located in high property value areas. Longbridge is a subsidiary of Ellington Financial.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240325783490/en/

Investor Inquiries:

Ellington Financial Inc.

Investor Relations

(203) 409-3575

info@ellingtonfinancial.com

Press & Media Relations:

Amanda Shpiner/Sara Widmann

Gasthalter & Co.

for Ellington Financial

(212) 257-4170

Ellington@gasthalter.com

Source: Ellington Financial Inc.

FAQ

What is the amount of the securitization closed by Ellington Financial Inc.?

Ellington Financial Inc. closed a $208 million securitization.

Who originated the reverse mortgage loans in the securitization?

Longbridge Financial, , a subsidiary of Ellington Financial Inc., originated the reverse mortgage loans.

How were the debt tranches issued in the securitization rated?

The debt tranches were rated by Morningstar DBRS, with the seniormost tranches receiving AAA(sf) ratings.

What did Ellington Financial Inc. retain in the securitization?

Ellington Financial Inc. retained certain tranches of the securitization in compliance with credit risk retention rules.

What option does Ellington Financial Inc. have regarding the securitization?

Ellington Financial Inc. retained the option to call the securitization at any time following the optional redemption date.