Ginnie Mae has released a term sheet for its revised
With the update, termed HMBS 2.0, Ginnie Mae wants to enhance liquidity for issuers by allowing the re-pooling of active and non-active buyouts into new custom, single-issuer pools.
HECMs are reverse mortgages insured by the Federal Housing Administration. Unlike Fannie Mae or Freddie Mac, which purchase and securitize mortgages, Ginnie Mae is
Ginnie Mae first put out
Under current HMBS rules, when a reverse mortgage reaches 98% of the FHA maximum claim amount, the issuer must purchase it out of the pool. At that time, it can be assigned to FHA, which takes over servicing the loan and disburses funds to the lender.
But issuer liquidity during the process can be a problem, a Ginnie Mae blog post said, adding "one of the largest HECM issuers became insolvent in early 2022 when interest rates spiked and liquidity dried up." While it didn't specify the lender and the dates don't quite add up, Reverse Mortgage Funding
Furthermore, as interest rates increased last year, HECM originations slowed. At the same time existing loans reached that 98% limit.
"This confluence of factors creates significant liquidity needs for the industry," the blog said. "Unless addressed proactively, this can lead to future disruption in the HECM market."
The market appears to have picked up as of late, with 2,460 FHA reverse mortgage endorsements in May, according to Reverse Market Insight. That was up nearly 17% from April's 2,150 and 20% compared with May 2023, when 2,051 HECMs were endorsed.
Meanwhile, homeowners 62 and older saw their housing wealth increase to $13.19 billion during the first quarter, up by $328.5 billion, the National Reverse Mortgage Lenders Association said.
Senior home values increased to an all-time high of $15.5 trillion during the period but that was offset by an increase in debt from $10.2 billion to $2.35 trillion, the NRMLA/RiskSpan Reverse Mortgage Market Index reported.
Under Ginnie's proposal, the weighted average principal balance in an HMBS 2.0 will be limited to 95%. That buffer is needed to provide an economic incentive to protect Ginnie Mae, and ultimately taxpayers, against a decline in home values.
Multiple valuation methods will be permitted. These include automated valuation models and broker price opinions. However, a 10% haircut will be applied in order to protect Ginnie Mae from home-price declines.
Under the proposal, the repurchase rule will kick in at 150% of MCA, or when the mortgage is assigned to the Department of Housing of Urban Development or the note is terminated, whichever comes first.
"Soliciting public comment on the structure of the HMBS 2.0 program is critical to developing a program that supports Issuer liquidity while protecting taxpayers," said Ginnie Mae Acting President Sam Valverde, in a press release. "Ginnie Mae remains committed to supporting the government reverse mortgage market and we will work swiftly to address input received as we work to implement the program."
