Ginnie Mae Notes Significance of HUD Study to Reverse Mortgage Market

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We’ve previously reported findings from the the extensive HUD-published study of HECM loan terminations: The Home Equity Conversion Mortgage Terminations: Information to Enhance the Developing Secondary Market. The study analyzes historical data on HECM loan terminations and presents important findings on the tenure of reverse mortgages by borrower classification and age categories.

Our interest in the study was to cull information that would be useful to potential reverse mortgage borrowers. However, the thrust of the study is to present data to help facilitate development of a private secondary market for reverse mortgages. In a recent press release, Ginnie Mae specifies just how the study will help facilitate this goal:

“This groundbreaking research will enhance the development of a secondary market for HECMs; it provides keen insights regarding the timing of HECM loan terminations; and, will greatly assist secondary market participants in assessing HECM loan performance,” said Robert M. Couch, President of Ginnie Mae.

“This type of information is vital to the emerging HECM market because it will help structure securities more effectively and it will help investors to price the HECM security efficiently-all of which will ultimately benefit senior home owners seeking to tap into the equity of their home,” explained Couch.

The newly released study comes as Ginnie Mae prepares its first HECM Mortgage-Backed Security (HMBS) for issuance in 2007. The Ginnie Mae HMBS will allow approved issuers to securitize and sell FHA-insured reverse mortgages in the form of a Ginnie Mae security. The Ginnie Mae HMBS will provide the mortgage-backed securities marketplace with a full faith and credit vehicle for the securitization of HECMs. The HMBS will increase liquidity by providing capital market funding sources to primary market HECM lenders, broadening distribution channels for HECM loans and expanding the investor base for the HECM product.

The PD&R research addresses the critical need for information by analyzing FHA’s historical loan level data on HECM loan terminations-a major factor in assessing loan performance. Reverse mortgages do not have a repayment schedule like traditional mortgages and are typically not repaid until the borrower dies, moves, or refinances. As such, reverse mortgage terminations are primarily driven by rates of mortality and mobility, which is the timing of borrower deaths and voluntary loan payoffs associated with moving out of the mortgaged property. Understanding loan termination behavior and the expected cash flow is vital to supporting a robust secondary market for reverse mortgages.

The results of this analysis are critical not only for program operations and private market product development, but also for developing an effective secondary market for HECM loans. Importantly, this study reflects FHA’s commitment to create an efficient market for HECM loans through a robust disclosure strategy.

Ginnie Mae is the quasi-governmental issuer of mortgage-backed securities that facilitate liquidity in the mortgage market. Ginnie Mae securities carry the full faith and credit guaranty of the United States government, which means that, even in difficult times, an investment in Ginnie Mae is one of the safest an investor can make. As noted above, Ginnie Mae plans to expand activities into the reverse mortgage arena in coming months.