Buyout Requirement Will Affect HMBS
Spring, TX-At least one Home Equity Conversion Mortgage lender-servicer finds a buyout requirement could take a huge toll on servicers once HECM-securitized loans come to maturity in a few years.
Ginnie Mae's renewed focus on HECM securitizations as a way to generate liquidity to the market appears to increase future servicing costs coming from certain Federal Housing Administration requirements.
"The reverse product we are working today is taking a whole different look at the market than it had in the past when a HECM, or FHA reverse mortgage, was predominantly sold to Fannie Mae," says Marc Helm, chief operating officer of Reverse Mortgage Solutions here. "Now the sales are predominantly to Ginnie Mae and that has been a big change."
Moreover, the limited number of available investors is pressuring HECM servicers like RMS to expand warehouse lender partnerships with lenders specializing in reverse mortgage financing, including reverse mortgage servicers, as a way to deal with constrains in securitizing loans through Ginnie Mae.
Related flaws in the current FHA program concern many of his peers in the reverse mortgage industry, Mr. Helm says.
"In the forward world, loans that are securitized by Ginnie Mae are assigned with a default process. In the reverse world, they are assigned only when they get to the 98% of the maximum claim amounts of loans that are not necessarily in default, even then they get 10% of the claim amount. So when that happens, and the HECM loan is part of a Ginnie Mae pool, the lender is required to buy that loan out."
In other words, if a loan that is part of a loan pool that has been securitized by GM that is not even close to 98% and going into foreclosure, he says, the lender can leave the loan in that pool if they have already paid the claim funds.
"If the same loan is taken out of a Fannie Mae assignment of a Ginnie Mae pool, Fannie has come up with a regulation that says: If the loan qualifies for assignment at 98% lenders have to buy it out. So you have to do it right away with your own money. But if it goes into foreclosure, you can leave it because it will get foreclosure funds just like you can on a forward loan Ginnie Mae security."
The lender-servicer does not accrue additional costs, he says, "I collect my claim. But it requires me as a servicer to have a very large net worth, credit line, or warehouse line to be able to buy those loans out when they start coming into maturity. How are we going to buy these loans out?"
It is a time sensitive issue with a three- to four-year window of correction opportunity. For Reverse Mortgage Solutions most of the HECM loans pooled into Ginnie Mae securities issued in the past two years will reach the maximum claim amount in about four years, but as the loan servicer RMS is required to have needed funds. The real window of opportunity would be if Ginnie Mae recognizes that requirement is not fair or necessary. Even though these loans are operated by the same government entity, under the same HUD umbrella, the requirement is to pay a claim on a Ginnie Mae security assigned loan the same way it is paid on a foreclosed loan. "Why are they requiring these loans to be bought out, meanwhile these other assets that are not even loans because they are already foreclosed on, stay on till the claim is paid?" The program and related requirements are relatively new and needs some adjusting, he says.
In fact, the overall volume of loans purchased for securitization by Ginnie Mae, including HECM loans, continues to grow. Earlier this year Ginnie Mae president Joseph Murin said the GSE is "solidifying its role" as one of the key MBS institutions in the country.