Any serious expansion of reverse mortgage production in 2009 and beyond will require increased investor support, and not just from buyers with a direct line to the U.S. Treasury.  Since its inception, reverse mortgage financing has been a one-note song, with funds coming almost entirely through Fannie Mae and the HECM (Home Equity Conversion Mortgage). That is, until the entrance in late-2007 of another government-sponsored enterprise, Ginnie Mae.

In little more than a year, Ginnie has packaged for financial investment more than $1 billion in HMBS (HECM MBS), according to Joseph Murin, president, who said he “would not be surprised to see these aggregate Ginnie Mae securitizations surpass $2 billion in the very near future.”  By way of comparison, Ginnie Mae expects to guarantee $300 billion to $325 billion in forward MBS in fiscal year 2009 [ending Sept. 30], up from $220 billion in FY’08.)

Will there be any secondary players outside Washington?

Private investment definitely is coming,” according to David Fontanilla, vice-president, Deutsche Bank Securities Inc., Securitized Products Group, New York, N.Y. DB has been the underwriting and placement agent for Ginnie Mae HMBS. But, Fontanilla concedes that once out from under the protection of government insurance, “investors will have to be convinced that it’s worth giving up [this] relative safety for bigger returns.”

One, long-time industry observer agrees. “While there might be more cash or more interesting options in the proprietary market,” he says, “that full faith and credit guarantee is a hard detail to compete against.”

Another seasoned onlooker predicts that “in the next year-and-a-half there are going to be some proprietary products coming back into the marketplace, but until credit markets stabilize,” he cautions, “you won’t see that.”