Who Needs Fannie Mae? Monthly GNMA Reverse Mortgage MBS Hits $1.5 Billion
September 16th, 2009 | by admin Published in FHA, GNMA, News, Reverse Mortgage | 9 Comments
The Government National Mortgage Association (GNMA) continues to see reverse mortgage volume grow, issuing a record setting $1.5 billion of HMBS in August. That brings GNMA’s YTD reverse mortgage volume to $3.680 billion.
The volume in August is more than all of GNMA’s HMBS volume in 2008 ($1.357 billion) and shows how the industry is turning to GNMA as an outlet compared to last year where Fannie Mae dominated the marketplace.
Below is a graph showing GNMA’s volume for 2009:
Is the industry’s reliance on Fannie Mae starting to shift to other investors? It’s clear that lenders are comfortable using GNMA for fixed rate production, but we are still lacking an attractive alternative for adjustable rate products.
Last week at the MBA conference, there was talk of a couple large banks becoming investors in HECM products and some are starting to test the waters. More on this later this week.
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- Ginnie Mae Releases HECM Mortgage Backed Security Program
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September 16th, 2009 at 11:08 am (#)
You state that lenders are selling their hecms to GNMA, but I think you mean that they are pooling their loans and creating GNMA securities. What we'll all be interested to see is- who is buying the hecm GNMAs- anybody out there have any insight?
September 16th, 2009 at 11:08 am (#)
Silly question?
Why would a large bank become an investor and not a lender?
September 16th, 2009 at 11:20 am (#)
The 10 year US Treasury Note yields 3.44. In a market like this a spread of 25 to 50 basis points, or a yield of 3.71 to 3.96, on a GNMA security, which is US Government Guaranteed becasue it's an Agency and not a GSE like FNMA,, attracts lots of institutional investors. There will always be an unlimited amount of GNMA pooling available. The pricing will reflect the current market but supply of money will remain huge. That's why if we can make the changes to the adjustable program that GNMA requires to be able to pool them not only would funding not be a problem but pricing, and therefore margins, would improve dramatically.
The big question is the fixed RMs are 5.56%. If GNMA HMBS are yielding 4%, where is that 1.56% going? Any lenders out there want to comment on that? Usually the pooled security would yield about .5 less than the yield of the underlying collateral to cover the lender servicing costs.
September 16th, 2009 at 11:42 am (#)
Bill,
Yes, your're correct, fixed the “selling” part. Thanks
September 16th, 2009 at 12:01 pm (#)
There are probably other issues floating around. I assume that the GNMA HMBS is an accural certificate and not throwing off a monthly cash payment like a normal GNMA- this may not be attractive for some investors
Your comment about the yield spread is interesting-especially since the price of serving is already built into the hecm loan accrual
September 17th, 2009 at 6:06 am (#)
Be careful what you wish for. Fannie Mae takes on a large amount of “back-end” risk with being an investor on HECM loans. When lenders decide that they want to become GNMA issuers, some don't realize that they step in the shoes of Fannie Mae – and they are now the investor (source of funds).
As an issuer, you are responsible for funding any advances on the loan (for delinquent taxes, insurance, foreclosure attorney fees, etc.). You must also buy the loan out of the GNMA security at 98% of the max claim amount – regardless of whether the loan is not assignable to HUD at that time. How many lenders can afford to cut a check for several hundred thousand dollars to buy the loan out of the GNMA pool and hold it on their balance sheet – potentially for years until the loan pays off?
As a last note, the reverse mortgage program for HUD is unique whereby the investor (aka the Issuer on GNMA security) must take title to a foreclosed property. HUD insurance will cover some, but not all, of your expenses related to the sale of that loan.
September 17th, 2009 at 1:06 pm (#)
Be careful what you wish for. Fannie Mae takes on a large amount of “back-end” risk with being an investor on HECM loans. When lenders decide that they want to become GNMA issuers, some don’t realize that they step in the shoes of Fannie Mae – and they are now the investor (source of funds).rnrnAs an issuer, you are responsible for funding any advances on the loan (for delinquent taxes, insurance, foreclosure attorney fees, etc.). You must also buy the loan out of the GNMA security at 98% of the max claim amount – regardless of whether the loan is not assignable to HUD at that time. How many lenders can afford to cut a check for several hundred thousand dollars to buy the loan out of the GNMA pool and hold it on their balance sheet – potentially for years until the loan pays off? rnrnAs a last note, the reverse mortgage program for HUD is unique whereby the investor (aka the Issuer on GNMA security) must take title to a foreclosed property. HUD insurance will cover some, but not all, of your expenses related to the sale of that loan.
September 17th, 2009 at 10:41 am (#)
Well said. I am very happy Ginnie Mae is out there providing the current liquidity it does but it is not without contingent liabilities. We need Fannie Mae and we need Congress to exempt HECMs from the HERA mandate.
September 17th, 2009 at 5:41 pm (#)
ReverseGuy,rnrnWell said. I am very happy Ginnie Mae is out there providing liquidity but as you stated, it is not without contingent liabilities. We need Congress to exempt HECMs from the HERA mandate for Fannie Mae to reduce its mortgage portfolio.