The government sponsored enterprise issued a Real Estate Mortgage Investment Conduit (REMIC) consisting of $9,255,811,613 HECM loans originated by Bank of America. A REMIC is a type of multiclass mortgage-related security in which interest and principal payments from mortgages are structured into separately traded securities.

The underlying REMIC securities are secured by reverse mortgages that are insured by the Federal Housing Administration.  The pool of loans consists of adjustable rate one-month LIBOR and CMT loans, with approximately 9.89% and 7.59% of the Group I Loans and Group II Loans in default, but not yet declared due and payable according to the prospectus.

As of Q1 2011, Fannie Mae had a $50.9 billion portfolio of reverse mortgages. The GSE’s involvement in the business has tapered off as reverse mortgage lenders started issuing securities through Ginnie Mae’s HMBS program.

Bank of America announced it was leaving the reverse mortgage business in February as part of a strategic decision to focus on other key areas of its business.

The REMIC composed of reverse mortgages is a first for Fannie Mae, but not the first REMIC in the industry.  Last year, Ginnie Mae issued the first reverse mortgage REMIC composed of $130.9 million of Bank of America reverse mortgages.

Fannie Mae said it expected to issue the certificates on May 27, 2011.

“Fannie Mae does not currently plan to sell the securities it issues, but rather plans to hold the securities in its portfolio for the foreseeable future,” said Pete Bakel, Financial Communications, at FNMA in an email to RMD.  ”In turn, it is not anticipated that this securitization will have any impact on the overall reverse mortgage market.”

Editors Note: A previous version of this article said that FNMA unloaded the loans, which was incorrect.  The loans are being securitized.

The annual loss attributable to common stockholders in the fourth quarter of 2010 was $2.1 billion and to eliminate the company’s net worth deficit of $2.5 billion for 2010, the Federal Housing Finance Agency has requested $2.6 billion from the Treasury, 80% of which is the dividend payment to the Treasury.

The outstanding unpaid principal balance of reverse mortgage whole loans included in Fannie Mae’s mortgage portfolio was $50.8 billion as of December 31, 2010 and $50.2 billion as of December 31, 2009, the company reported. The majority of those loans are HECM loans insured by the FHA.

In terms of HECM loans, Fannie Mae’s market share of new reverse mortgages was 2% in 2010, down from 50% in 2009. The decrease comes following the company’s announcement in December that it would exit the reverse mortgage business and would discontinue the acquisition of newly originated HECM loans.

“Because home equity conversion mortgages are insured by the federal government, we believe that we have limited exposure to losses on these loans…The decrease in market share was a result of changes in pricing strategy and market conditions,” the company said.

Written by Elizabeth Ecker

“Ginnie Mae continues to be a vital part of the nation’s economic recovery,” said Ginnie Mae President Ted Tozer. “Clearly, investors appreciate the 100 percent government guarantee. The Ginnie Mae MBS has maintained a strong investor base throughout the downturn; and without the stability that Ginnie Mae provides, recovery in the housing sector would have been much slower.”

Issuance for Ginnie Mae II single-family pools totaled over $18.46 billion in December. Issuance for the Ginnie Mae I single-family pools topped $12.28 billion and issuance for the HECM Mortgage-Backed Security (HMBS) was more than $1.02 billion in December. Total single- family issuance for December was more than $31.76 billion. Ginnie Mae’s multifamily MBS issuance was over $1.74 billion.

While reverse mortgage volume was down 35 percent during 2010, HMBS issuance reached $10.791 billion, up 26.39 percent from last year.

The program has been the backbone of the secondary market after Fannie Mae announced it would no longer purchase reverse mortgages last October.  The GSE said it has a $50.8 billion portfolio of reverse mortgages as of September 30, 2010.

The number of Americans who believe it’s a good time to purchase a home fell to 68 percent (down 2 percentage points since June) according to the third Quarter 2010 Fannie Mae National Housing Survey.

Polled between July 2010 and September 2010, the results show that Americans are less certain the housing market has bottomed.

“Consumer attitudes toward buying a home are more negative since last quarter,” said Doug Duncan, Vice President and Chief Economist, Fannie Mae. “Our survey shows that Americans’ declining optimism about housing and their personal finances is reinforcing increasingly realistic attitudes toward owning and renting.”

The number of respondents who think home values will rise during the next year fell by 6 percentage points to 25 percent, while 22 percent expect home prices to decline (4 percentage points higher). Americans continue to believe that rental prices will rise more than home prices and continue to believe that rental prices will go up rather than go down by a ratio of almost 4 to 1 (Americans expect rental prices to rise by 2.8 percent over the next year, compared to 3.6 percent in June).

For the first time, Delinquent borrowers are more likely to say they would rent rather than buy their next home — 50 percent would rent (up 10 percentage points since January) and 45 percent would buy (down 11 percentage points since January). More than half of Delinquent borrowers are very stressed about their debt, and, unlike most Americans, are falling into more debt — 29 percent of Delinquent borrowers have significantly increased their mortgage debt during the last year, almost three times the percentage of Mortgage borrowers who did so.

View the full report here.

The company’s net loss attributable to common stockholders was $3.5 billion, including $2.1 billion in dividend payments to the U.S. Treasury.  The GSE said it requested $2.5 billion from the Treasury to eliminate the company’s net worth deficit of $2.4 billion as of September 30, 2010.

“Our operating results reflect our ongoing efforts to manage the credit-related expenses in our legacy business and build a new, profitable book of business,” said Fannie Mae President and CEO Michael J. Williams.

“The loans we have acquired since the beginning of 2009 reflect our commitment to realistic, common-sense lending standards and sustainable homeownership. Their credit profile remains strong, and we expect these loans to be profitable over their lifecycle. We are building this new book of business while we continue to provide liquidity to America’s housing market as it struggles to recover, and to support programs to help families stay in their homes and avoid foreclosure whenever possible.”

According to SEC documents, the GSE’s outstanding unpaid principal balance of reverse mortgages in its portfolio was $50.8 billion as of September 30, 2010 and $50.2 billion as of December 31, 2009.  Fannie Mae’s market share of new reverse mortgage acquisitions fell below 1% in the third quarter of 2010, down from 20% in the third quarter of 2009.

“The decrease in our market share was a result of changes in our pricing strategy and market conditions,” said Fannie Mae.  “Because home equity conversion mortgages are insured by the federal government, we believe that we have limited exposure to losses on these loans.”

The GSE announced it would no longer purchase reverse mortgages in October due to systems lacking the ability to handle the new HECM Standard and Saver products

While the announcement was welcome news, Tozer failed to bring the most important piece of information, the new net worth requirements.

Earlier during the conference, Michael Nardacci, Director of Ginnie Mae, said the agency plans to release the details by year end.

“We really are taking our time to get it right, please bear with us as we try to get this correct,” Nardacci said.  “In terms of the HMBS market, it’s very expensive and issuers need to be very well capitalized to serve the product.”

Ginnie Mae is the only source of liquidity for reverse mortgage lenders after Fannie Mae announced it would no longer purchase reverse mortgages (HECM) in October. While the HMBS program has grown from $1.357 billion in 2008 to $8.538 billion in 2009, overall, the product is “under 2% of what GNMA does” said Nardacci.

There are currently 10 approved HMBS issuers but others like Urban Financial – backed by Knight Capital Group – have been very public about their desire to get approved.  Industry sources tell RMD the new net worth requirements will be raised dramatically, north of $10 million to ensure issuers can meet draw requirements.

In effect, “HECMs got more expensive, which generally reduced borrower proceeds,” this person explains, “but that also brought the product more in line with other investment options in order to attract additional financiers to the market.”

Indeed, FHA’s concomitant notification that it would replace its single reverse mortgage product with a new, two-product menu (HECM Saver and HECM Standard) “was simply a convenient opportunity to allow Fannie Mae to make an announcement that it was exiting the market altogether,” the person believes.

More or less confirming this, a Fannie Mae spokesperson tells RMD that, “in light of recent product changes announced by HUD, Fannie Mae is currently assessing the infrastructure changes necessary to support the new HECM program and is unable to accept new deliveries at this time.”

“We all knew, at some point, that Fannie would not be able to buy mortgages forever,” says Michael McCully, Partner, New View Advisors. “We’ve been advocating for 10 years that secondary markets need to move away from Fannie and play a bigger role for the long-term viability of the industry.”

McCully says that as Fannie is replaced as a secondary market buyer, it is hoped that there will be “enough ultimate [proprietary] demand for the product. Reverse mortgages need to take a big step forward,” he maintains, “in getting information out and publicly available so investors can learn about the product and invest capital in it.”

Written by Neil Morse

The Government Sponsored Entity (GSE) is no longer accepting new commitments or deliveries that have case numbers dated on or after October 4, 2010.  Lenders have a 90 day period in which they can deliver any loans that were obtained prior to the start of the Department of Housing and Urban Developments FY 2011.

While the changes might sound drastic, the reality is that Fannie Mae’s importance in the reverse mortgage business has been sliding dramatically ever since it announced significant pricing changes in 2009.  The GSE’s market share went from 68% in the second quarter of 2009 to approximately 2% during the second quarter of 2010.  Fannie Mae purchased $200 million of HECMs during the last quarter and its portfolio has leveled off for the most part at $50.7 billion.

The marketplace found a better alternative in Ginnie Mae’s HMBS program which is the main source of liquidity for reverse mortgage lenders.  According to data from the agency, HMBS issuance rose from $1.357 billion in 2008 to $8.538 billion in 2009.  For 2010, HMBS reached $7.244 billion as of August and will easily pass the record levels of 2009.

There was concern about whether the announcement would impact smaller Ginnie Mae issuers, who don’t have the ability to issue adjustable rate HMBS because of the liquidity requirements, but it’s not the case.  An executive at a leading wholesale lender told RMD that those without the authority should have agreements to sell to someone who does, so its unlikely that it will be an issue.

The industry continues to wait for Ginnie Mae to start accepting new HMBS issuers after it suspended approvals to perform a “comprehensive review of the risks associated with the HMBS (HECM MBS) program both to issuers and Ginnie Mae, in order to evaluate possible changes to the program.”  The agency has refused to release any details on what the new net-worth requirements will be or when they will be announced.

Until they do, the reverse mortgage industry has only nine active issuers.