Ginnie Mae reduces minimum size for securitized HECM pools by 75%

Ginnie Mae announced changes to the minimum size for loan pools backing reverse mortgage securitizations, as it attempts to reduce liquidity risks facing lenders.

The government corporation, which backs securitizations of loans insured or guaranteed by the Federal Housing Administration and other public entities, reduced the required minimum size of securities pools by 75% from $1 million to $250,000.

The new minimum-size guidance for Home Equity Conversion Mortgages securitizations goes into effect on April 1, and a pool must contain at least three participations, with each tied to a particular loan.

Ginnie Mae cited the acceleration of interest rates and broader economic challenges facing the U.S. as reasons behind its decision. The combined factors have increased the liquidity risks for issuers, which are responsible both for funding borrowers' home-equity draws and ensuring payments to investors in HECM mortgage-backed securities get made on time. The reduction in minimum pool size is intended to decrease the length of time issuers must carry balances between origination disbursement and securitization.

"Ginnie Mae is responsive to the market conditions our counterparties face in the reverse mortgage segment. This step allows [a] quicker path to HMBS securitization and supports issuer liquidity," said Ginnie Mae President Alanna McCargo in a press release.

The rule change comes following the late-2022 bankruptcy of Reverse Mortgage Funding, previously one of the segment's leading originators, whose downturn in fortunes and inability to sell its servicing portfolio led Ginnie Mae to seize it.

The bankruptcy threw into the spotlight concerns surrounding liquidity risks in the HECM program, which is overseen by the FHA. 

In a recent report, the Urban Institute specifically singled out Reverse Mortgage Funding's troubles as an example of systemic issues impacting the liquidity of HECM lenders and a warning sign of what might lie ahead if they are not addressed. Many other companies' reverse lending portfolios have similar profiles as RMF's, the research organization said. 

On a broader scale, recent consolidation on top of the exit of depository banks from mortgage banking after the Great Recession have increased worries about the stability of Ginnie Mae and similar government entities. The precarious financial situation of some nonbank lenders, who have issued the majority of home loans in recent years, could pose threats to the entire mortgage industry should too many be forced to cease operations in the current market slowdown without being picked up by successor organizations.

RMF's bankruptcy occurred amid a volatile 2022 for reverse mortgage lenders. After HECM endorsements hit an 11-year high in March, they dropped to multiyear lows just a few months later. 

In December, reverse mortgage business slowed even further. New HECM endorsements fell 14.8% on a month-to-month basis to 2,785 from 3,270 loans, according to data and business intelligence provider Reverse Market Insight. Both retail and wholesale channels posted nearly identical drops in percentage of 14.8% and 14.9%.

The monthly number represented a plunge from 5,214 endorsements in the same month a year earlier, a 46.6% drop.

Full-year endorsements increased by 11%, though, totaling 58,776, up from 52,945 in 2021. Retail channels accounted for 32,952 or 56% of 2022's volume, while wholesale lenders issued the remaining 44%, or 25,824 endorsements.

The top two originators, American Advisors Group and Finance of America Reverse, who recently agreed to a merger deal, garnered 41.8% of total endorsement volume in 2022. They were followed by Longbridge Financial with 14.3% of market share and Mutual of Omaha Mortgage at 9.9%. Despite its November bankruptcy, Reverse Mortgage Funding managed to land in fifth place with 7.9% of all endorsements.

In December, American Advisors Group saw the largest number of endorsements with 551. Longbridge came in with 492, followed by Mutual of Omaha Mortgage at 471, with both lenders among the few companies reporting monthly volume growth despite the wider industry slowdown.