Ginnie Mae Adds Depth to Reverse Mortgage Market
Ginnie Mae is on track to securitize its first pool of FHA-insured reverse mortgages in September that would allow lender/issuers to sell the federally guaranteed mortgage-backed securities to Wall Street dealers and other investors.
Federal Housing Administration reverse mortgages are known as Home Equity Conversion Mortgages and they don't create any cash flow for investors until the senior moves or dies.
So Ginnie executives expect the Wall Street houses will place the HECM securities in real estate mortgage investment conduits with other mortgage products.
"We think it is going to improve pricing for consumers and help originators find an efficient secondary market execution," Ginnie president Robert Couch told a Mortgage Bankers Association government housing finance conference last week.
The Ginnie HECM structure will allow reverse mortgage lenders to securitize lump-sum payouts as well as monthly draws in pools as small as $1 million.
During the life a $100,000 HECM loan, the initial $60,000 lump-sum payment to the borrower would be placed in one MBS, while $1,000 monthly payments and other advances made by the lender/servicer could be bundled and placed in second and third mortgage-backed securities.
"It is a fairly simple structure for investors," Mr. Couch said in an interview. The complexity comes with the servicing because one reverse mortgage could have participations in multiple securities.
"We have one servicer ready for the September rollout and we've got others that may be ready," the Ginnie president said.
Mr. Couch is in line to be the new general counsel for the Department of Housing and Urban Development. If confirmed by the Senate, he will give up his post at Ginnie Mae.
The Ginnie president encouraged the MBA conference attendees to consider reverse mortgage lending.
He noted HECM originations jumped nearly 80% in fiscal year 2006 and 10,000 people a day are turning 60. "It is a huge market opportunity," Mr. Couch said.
FHA endorsed 75,985 HECM loans totaling $12 billion in FY 2006. As of April 30 (seven months into FY 2007), reverse mortgage lenders had originated 61,100 HECMs.
Meanwhile, Congress is considering FHA reform legislation that would increase HECM loan limits but also reduce origination fees.
The bill (H.R. 1852) approved by the House Financial Services Committee keeps a 2% cap on HECM origination fees, but bases the fee on the initial principal amount of the loan.
This fee structure is employed in the jumbo reverse mortgage market, but it does not provide enough compensation for lenders making lower-balance HECM loans, according to Peter Bell, president of the National Reverse Mortgage Lenders Association.
In addition, the initial loan amount is determined by the age of the senior borrower and the interest rate on the loan. "It would make the origination fee smaller for a younger borrower than an older HECM borrower, which doesn't make a lot of sense," Mr. Bell said.
The Mortgage Bankers Association also is concerned that the change would discourage lenders from offering HECMs.
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