REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

One of the big culprits pointed to in the current mortgage fiasco is the rapid growth of mortgage “securitization”. This term refers to the practice of bundling lots of individual mortgages into investment securities for sale to investors throughout the world. The big benefit of securitization is that a larger pool of investors is attracted meaning more money can be raised for additional loans while, at the same time, investor competition (and GNMA guarantees) help keep interest costs down.

But when traditional mortgages are securitized, it seems that banks and other lenders tend to pay less attention to the underlying credit worthiness of the frontline borrowers than they do when mortgage loans are held in their own loan portfolio. In the rush to generate fees and maintain loan production, too many lenders lost sight of the simple fact the system ultimately depends on the ability of the borrower to make their monthly loan payments.

It seems ironic, then, that just as securitization of traditional mortgages undergoes close scrutiny, the Government National Mortgage Association (Ginnie Mae) unveils a new program aimed at expanding the securitization of HECM reverse mortgages. (more…)

A new acronym has been added to the reverse mortgage vocabulary - HMBS. HMBS stands for HECM mortgage backed securities. These are securities that Ginnie Mae will issue starting in September 2007 to attract investors and promote liquidity and efficiency in the growing reverse mortgage market. According to Ginnie Mae:

Today, there is a limited secondary market for reverse mortgages. With very few investors, complicated security structures, and a growing market appetite, a robust secondary market is needed to facilitate the growth and affordability of reverse mortgages. A Ginnie Mae HMBS, carrying the full faith and credit of the United States Government will serve as an attractive investment to a relatively untapped investor base. The quality and liquidity of a standardized Ginnie Mae HMBS security structure will help to foster a liquid, robust secondary market, which will in turn drive down the costs of reverse mortgages for seniors….

Ginnie Mae securities are actively traded in the global capital markets. Ginnie Mae is confident that investors will invest in its HMBS and thereby provide a robust secondary market for lenders to originate HECM loans, pool them into Ginnie Mae MBS, and sell them into the global markets. This liquidity will prove to be a great benefit for the senior homeowner. Our research indicates that the Ginnie Mae securitization of HECM loans will result in a savings of 50 basis points or more for the borrower. On an average HECM loan of $118,000, this savings amounts to over $10,000 over a 10-year period, the average life of a HECM loan.

Ginnie Mae recently released a “Reference Guide” for the HMBS program. The guide is a technical document intended to acquaint potential lenders and investors with requirements and eligibility criteria for the forthcoming program. The HMBS will likely be seen as one of the key events in the development of reverse mortgages. If you haven’t heard the acronym HMBS used, you most certainly will in the months and tears ahead.