The top three issuers as of quarterly data reported in November 2011 measuring original principal balance were Urban Financial ($178 million), MetLife ($136 million) and Reverse Mortgage Solutions ($117 million). This compares with the top three issuers as of November 2010: Bank of America ($246 million), Wells Fargo ($229 million) and Reverse Mortgage Solutions ($135 million).

Ginnie Mae says that despite the changes, the outlook for HMBS issuance is bright, with several lenders stepping in to begin issuing in 2012 or already with issuance under way.

“When those issuers left, others stepped up to help volume,” says Ted Tozer, president of Ginnie Mae, noting the entries of Knight Capital Group and Quicken Loans into the issuer landscape. “People are getting out, people are getting in, but people perceive that seniors are going to need to tap into equity in their home to supplement retirement savings and social security,” he says. “The capacity is there.”

One such lender, Urban Financial Group, received its approval in the first quarter of 2011 and began issuing shortly thereafter. It has since risen through the ranks to the top-5 issuers and completing the greatest issuance of that group according to Ginnie Mae’s issuance tracking as of November 2011.

Urban has attributed much of its recent success to its HMBS pools, and reported in its fourth quarter and annual earnings conference call in January that it completed $450 million in HMBS during that quarter.

“We are very pleased that we were among the top issuers of HMBS and we fully expect to be a leading issuer in 2012,” Steve McClelland, Knight managing director and Urban Financial’s chief executive told RMD.

Another Top-10 lender received approval in 2011, but has yet to complete any issuance. One Reverse Mortgage, a division of Quicken Loans, has its approval and plans to begin issuing soon, but is mum on the details of when that will happen.

“We are following our plan and are looking at it closely this year,” Gregg Smith, One Reverse president. “It’s one of our initiatives. We’re growing.”

The newer Ginnie Mae issuers have been subject to increased capital requirements, which has ruled out some potential issuers.

The changes, along with a moratorium on new issuers, seem to have done what they set out to do, says Michael McCully, partner with New View Advisors.

“The whole point of capital requirements being revised was to level the playing field,” McCully says. “The folks coming in are relatively sophisticated. They’re all sensitive to it being a big deal and they understand the capital requirements.”

As for what Ginnie Mae is seeking, that capital is key.

“People need to be aware under Ginnie Mae rules, once the balance is 98% a loan must be re-bought,” Tozer says. “They must be prepared to show us how they’re planning to fund that buy. That’s the biggest challenge.”

Written by Elizabeth Ecker

The deals were structured to include some potential losses and the downgrades now reflect a greater loss expectation.

“Falling home prices and longer liquidation timelines expose these transactions to potential losses,” Moody’s stated. “Even though these mortgages are insured by HUD, they could be exposed to losses if the properties backing them are not liquidated within six months of entering REO.”

The rating agency further explained that the risk that loans will take longer than six months to sell after entering REO has risen significantly, a trend which Moody’s corroborated by data from servicers. Currently, approximately 7%-10% of the matured servicer portfolios where HUD has verified that loans are due and payable, consist of loans that have been in REO for longer than six months, Moody’s said, indicating that losses on loans that have sold after six months of entering REO have averaged 20%—in other words, are selling for 20% less than their appraised amounts, on average.

Some of the deals have been consistently plagued with slow prepayment speeds, Joe Kelly, partner of New View Advisors, told RMD.

Moody’s based the downgrade on assumptions including the sale of REO properties at 20% lower than their appraised values, and that all properties in foreclosure will go into REO.

Written by Elizabeth Ecker

“I don’t think the impact on the secondary market will be as significant or as business changing as it would be on the loan side,” says David Fontanilla, Pioneer Analytics & Consulting Group.

The primary comfort to investors is the government guarantee, Fontanilla says. To the extent that the new underwriting will boost the government support of the program, that could be seen as a positive for investors, he says, but the main draw is the fact that their investment will be protected against future losses.

“It’s a step in the right direction,” Fontanilla says. “For the secondary market, it’s a small net positive. Anything that helps ensure the long term viability of the program is important.”

Another potential benefit, he says, could be that if the changes are viewed to help provide sustainability, they might attract new private investment—as long as the underwriting component doesn’t impact volume to a large degree.

As for whether investors will favor some loan pools over others due to the underwriting discrepancy, those who buy and sell the loans say it is unlikely.

“I would think that only the marginal investor, especially ones that are new to the asset, will be more inclined to buy MetLife pools,” says Jeff Traister, managing director for Cantor Fitzgerald.

There is unlikely to be much of a premium on the loans from an investor standpoint, even though the changes do bode well from an overall perspective.

“It’s hard to see right now how all the dominos are going to fall,” Fontanilla says. “The initial instinct for a lot of the investors is they will view as a net positive, but won’t pay more.”

Written by Elizabeth Ecker

Posting record earnings due to lower loss provisioning, Ginnie Mae president Ted Tozer said the agency “beefed up” loss reserves in the previous year, but that it was not necessary to do so in 2011.

“Our business is simple, our approach to risk-taking is conservative, and our ability to finance government-insured mortgages is helping to keep the housing market afloat,” Tozer said.

The company reported that it helped finance nearly 60% of all U.S. home purchases in FY 2011.

In 2011, Ginnie Mae issued a total of $263.3 billion in single family mortgage backed securities, surpassing Freddie Mac’s volume of $251.5 billion and becoming the second largest MBS issuer to Fannie Mae.

Written by Elizabeth Ecker

Lenders issued more than $15.1 billion of Ginnie Mae II single family pools and $7.67 billion Ginnie Mae I single-family pools, with the latest issuance also showing a 13% month-over-month decline for HECM Mortgage Backed Securities (HMBS).

Ginnie Mae HMBS issuance showed a steady increase over the previous months, but posted $844 million in HMBS in August, a $125 million decrease from its July total of $969 million. The issuance has rallied throughout the year, with August’s decrease marking its first decline since May.

Written by Elizabeth Ecker

By eliminating the loans that are at high risk for default, this change should serve to strengthen the performance of Ginnie Mae pools.

The new guidance, under APM 2011-13, states that applies to loans that meet the above agencies’ required trial payment plans for permanent loan modifications. FHA recently announced its trial payment requirements in Mortgagee Letter 2011-28.

If the borrower cannot complete the trial payment period, the issuer cannot buy the loan out of the pool until it has been in default for 90 days or more.

“Modified loans that have successfully completed the modification process per the insuring agencies’ requirements and have been permanently modified may be re-pooled,” said Ginnie Mae. “In order to be eligible for re-pooling, the permanently modified loan must be current as of the issuance date of the related security.”

View APM 11-13.

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Lenders issued more than $15.2 billion of Ginnie Mae II single family pools and $7.26 billion Ginnie Mae I single-family pools.

The latest issuance also shows a steady incline for HECM Mortgage Backed Securities (HMBS).

Ginnie Mae HMBS issuance showed a strong increase in July, posting $991 million in HMBS, a 20% increase over its June total of $801 million. The issuance has rallied throughout the year, and July’s increase marks its second consecutive gain since it fell in May.

Written by Elizabeth Ecker

“While I am highly concerned, I do not think GNMA HECMs take a hit due to [the] downgrade, but prices drop/spreads widen more in sympathy with other assets,” says Jeff Traister, managing director and head of agency and non-agency reverse mortgage trading for Cantor Fitzgerald.

“The beauty of our product is the cash flows are basically uncorrelated with everything else. I feel this moment in time will ultimately prove to be the moment in time when investors finally began to sit up and take notice,” he says.

While not projecting a positive net outcome from the debt downgrade, Knight Capital, owner of reverse mortgage lender Urban Financial Group noted the lack of negative impact on HMBS that was seen across other markets.

“We haven’t seen a major negative impact on pricing or liquidity for HMBS, but it is too soon to know what the long-term impact may be,” says David Fontanilla, director for Knight Capital. “Investors appear to be very focused on the macro picture given all of the market news lately.”

The Dow Jones Industrial Average saw its greatest single-day loss since December 2008 on Monday, shedding 634.75 points, or 5.5%. Most markets saw an even greater, double-digit decline in total throughout the days leading up to the debt downgrade and immediately following, before the market rallied on Tuesday to regain some of the losses.

In addition to the U.S. credit downgrade, S&P also struck Fannie Mae and Freddie Mac on Monday when it reduced the government-sponsored enterprises’ ratings from AAA to AA+, based on their direct reliance on the U.S. government. While the drop in rating is not good news, it should have very little bearing on the HECM market, the analysts say.

As most markets continue to react to sustained uncertainty, however, the market for HMBS stands to fare well.

“As painful as this may be, it will prove to be the turning point,” Traister says.

Written by Elizabeth Ecker