Mortgage Orb just published an article written by Financial Freedom’s Jeff Birdsell who heads up their secondary market and product development. It’s the best article I’ve read that explains how Ginnie Mae’s Home Equity Conversion Mortgage-Backed Securities (HMBS) function. Typically, articles written about HMBS are confusing due to the complexity of the product but Birdsell does a great job breaking it down.
In the article he addresses the fact that given the demographics of our senior population, wouldn’t you think the reverse mortgage industry would be much larger than it is right now?
Even though FHA has continued to expand the HECM product with its recent introduction of LIBOR-based HECMs as well as a closed-end HECM Fixed product, there are more tweaks and modifications necessary to help the HECM product along.
On the investor side, however, the industry has been extremely limited. For the HECM products, Fannie Mae has been a whole loan purchaser for more than 15 years and, for most of this time, stood alone in that role. At the end of 2006 and beginning of 2007, the industry had enough volume to attract investment banks to the table. For the first time, the industry had multiple bids on pools of HECM loans.
The challenge is creating a securitization structure that can support the cashflow requirements of a pool of reverse mortgages. These cashflow requirements include fees to the servicer, line of credit draws to the borrowers, monthly term or tenure payments to borrowers and, if required by the security, monthly payments to the security holders.
Birdsell then goes on to write about how the Ginnie Mae HMBS helps address the cashflow requirements of reverse mortgages. Definately worth the read.