A new type of reverse mortgage security needs to be created to accommodate Home Equity Conversion Mortgages that have reached the 98% maximum claim amount, a pair of industry organizations said in their respective responses to a government request for information.
The RFI from the Federal Housing Administration and Ginnie Mae — along with their parent agency the Department of Housing and Urban Development — was seeking opinions on the appropriate role of the HECM and HMBS programs in facilitating access to home equity for senior homeowners and opportunities to improve these programs, an Oct. 2 Federal Register posting said.
The request noted the declining volume of HMBS issuances starting in 2022. That year had a record of almost $14 billion, according to an article on the National Reverse Mortgage Lenders Association website. The total dropped by half to $6.5 billion and then to $6.3 billion securitized in 2024, the same level as nearly a decade prior.
The comment period ended on Dec. 1.
How the trade groups want to change the reverse mortgage program
NRMLA thanked FHA and Ginnie Mae for opening this review, the group said in a letter signed by its president, Steve Irwin.
"As with any long-standing programs, there are opportunities to modernize and improve certain of their attributes, including critically necessary changes to substantially reduce the costs to FHA and the [Mutual Mortgage Insurance Fund] as well as to improve issuer liquidity and the financial strength and soundness of the Ginnie Mae HMBS Program," Irwin continued.
Consumer demand for HECMs remains strong according to its members, the Mortgage Bankers Association letter said.
"However, overall HECM loan volume has not increased due to overly burdensome aspects of the loan process and the steep upfront costs associated with the loan," wrote Pete Mills, senior vice president of residential policy and strategic industry engagement. "These factors discourage many potential borrowers as they evaluate whether a HECM is suitable for their needs."
In the recently completed fiscal year 2025, 28,172 HECMs were endorsed, HUD data posted on the NRMLA website said. This was up from 26,521 in 2024, but down from 32,991 in 2023 and a recent high of 64,489 in fiscal year 2022.
The best year ever was 114,692 in fiscal year 2009. This was the same year the reverse mortgage program fund was put into the MMIF and starting a few years later,
This has since turned around, and the
But reliance on the private reverse mortgage market only "will leave many seniors underserved and create system-wide fragility," NRMLA's Irwin said.
"The HECM and HMBS programs remain essential and, we believe, foundational to the functioning of the entire reverse mortgage market and fulfilling the critical social mission this unique product serves," he continued.
Why a new HMBS security is needed
The resecuritization of loans that have
To go alongside this, MBA said existing servicers should be allowed to continuing servicing reverse mortgages assigned to FHA.
"FHA would significantly benefit from the immediate relief gained by leaving servicing in the hands of the private market, with lenders who are highly incentivized to minimize servicing-related losses," Mills said. "Under the proposed framework, private servicers would retain servicing fee revenue throughout the life of the loan, strengthening their business models."
In turn, because of the competitive nature of the market, any savings this generates can be passed on to borrowers in terms of lower pricing.
What other changes need to be made to the HECM program
The MBA also gave a laundry list of potential program improvements. These include:
- Restructuring the upfront HECM mortgage insurance premium;
- Restructuring the principal limit factors;
- Modernize collateral risk assessment through the use of automated valuation models along with other data sources;
- Adjust the life expectancy set-asides; and
- Creating a robust counseling process through the use of digital tools and expanding remote access.
NRMLA made a number of similar arguments, including for a return to risk-based pricing for the mortgage insurance premium.
It is also looking for an update to the interest rate indices used for HECMs and HMBS.
"Investors have transitioned away from the Libor index to the Secured Overnight Financing Rate, but current HECM loans still utilize the Constant Maturity Treasury index for many loans," which creates a capital market conflict, Irwin wrote.
HECM floating-rate securities are based on a monthly reset SOFR index, but the underlying reverse mortgages predominantly are indexed to the 1-year CMT. "This index mismatch creates 'index basis risk,' meaning the interest rate on the loan and the rate on the security do not move in tandem," NRLMA said.
It suggested that for monthly adjusting HECMs, FHA should allow the 30-day Average SOFR as the interest rate index, and Ginnie Mae should authorize HECMs which are priced to this to be eligible for HMBS pools. "This change aligns the loan rate structure directly with the monthly reset SOFR floating securities that dominate the secondary market," Irwin said.
