Ginnie Mae issued a press release on Friday which reports that with the recent study published by HUD, they are confident that they have the information necessary to issue their first HECM Mortgage-Backed Security (HMBS) this year. The report issued by HUD analyzed 16 years of HECM loan level data. According to the press release, Robert M. Couch, President of Ginnie Mae said, “This groundbreaking research will enhance the development of a secondary market for HECMs; it provides keen insights regarding the timing of HECM loan terminations; and, will greatly assist secondary market participants in assessing HECM loan performance.”
The study examined the timing of HECM loan terminations which are a major factor in assessing HECM loan performance. Unlike a traditional mortgage, reverse mortgages are typically not repaid until the borrower dies, moves, or refinances. Because of the unique repayment schedules, understanding loan termination behavior and the expected cash flow is vital to supporting a robust secondary market for reverse mortgages.
A few of the findings from the study are:
- HECM borrowers are more likely to be single females.
- Single females generally terminate their HECM loans more slowly than do single males of comparable age.
- The 10-year loan survival rates for typical borrowers (those in their mid-70s at loan origination) are:
- 26 percent for single females
- 17 percent for single males
- 29 percent for couples
- Property values for recently insured HECM loans averages $289,000, and the initial principal limits on these loans (maximum cash available to borrowers) averages $159,000.
“This type of information is vital to the emerging HECM market because it will help structure securities more effectively and it will help investors to price the HECM security efficiently-all of which will ultimately benefit senior home owners seeking to tap into the equity of their home,” explained Couch. When GNMA issues the first HMBS it will provide the marketplace with a full faith and credit vehicle for the securitization of HECMs and hopefully expand the current small investor base for the HECM product.
To read a copy of the press release click the link below.