Fannie Mae’s Reverse Mortgage Market Share Approximately 90 Percent

image Fannie Mae reported its first-quarter 2009 results and showed that it lost $23.2 billion and is requesting $19 billion from the Treasury under a senior preferred stock purchase plan to preserve a positive net worth.

As the nation’s housing market reels in its worst downturn since the 1930s, credit-related expenses accounted for the majority of Fannie Mae’s loss, at $20.9 billion, the company said in a statement. It also took a $5.7 billion loss on mortgage securities.

"Persistent deterioration in housing, mortgage, financial and credit markets continued to adversely affect our financial results," the company said.

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According to FNMA’s 10-Q, its outstanding unpaid principal balance of reverse mortgage included its mortgage portfolio was $45.9 billion and $41.6 billion as of March 31, 2009 and December 31, 2008, respectively.  They estimate its market share of reverse mortgages was approximately 90% as of the end of 2008.  

In the company’s 10-Q, liquidity is a major concern and FNMA states that its investments in multifamily whole loans and reverse mortgage loans are generally illiquid and generally can’t be relied upon to raise proceeds from their sale or as collateral for lending.  This helps explain its reasons for raising the margins on reverse mortgages. 

At the NRMLA regional conference in Chicago, Jeff Lewis, chairman of Generation Mortgage, said that in order for the market to be buyable, the margins need to go up to attract investors.  As margins continue to rise, it will be interesting to see what the “tipping point” will be for other investors to come back into the market.

Fannie Mae Reports First-Quarter 2009 Results

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  • >>As margins continue to rise, it will be interesting to see what the “tipping point” will be for other investors to come back into the market.

    I don’t like this game – it’s too painful and I don’t want to play it anymore.

  • As margins continue to rise–it will also be interesting to see how many seniors “walk” away from applying for a reverse mtge. The seniors who are looking at the reverse mtge line of credit as a cushion or for a few luxuries in life might not see it as that attractive. The seniors who are struggling financial, who don’t have many options, will just get less!

    And our job will become more difficult. Can you say “part-time” job!

  • How about the impact that these higher margins will have in 4-5 years? I 3.5% interest rate right now, add a little rise in rates and some inflation, and seniors will be looking at their statements each month showing 9-10% in interest accumulating.

    Think about the impact that will have on the business and the impressions of reverse mortgages.

  • “for investors to come back into the market” assumes that no one knows who the investors are or they would just ask them “What’s it take to get you into the market”. The investors are already here! The investors are using FNMA to raise the rates just like a auctioneer uses a shill to push prices higher. Why would investors enter the market they already control? FNMA is just the front man for the “investor”, nothing more. These articles make it sound like FNMA is wandering around in the dark without a clue uttering “what does it takes to get you (investors) into the market” all the while raising rates trying to reach the “tipping point”. The real “Tipping Point” is the point at which the financial tip (future employment for FNMA’s appointed leaders)was enough to get these FNMA shills to do the bidding of their future employers.

  • Here’s a question… how much return to investor get on “forward” mortgages without the gurantees that the FHA offers? and how does that compare to the gurantee on investment of a FHA reverse?

  • By raising margins, FNMA expects to shore itself up and encourage private investment. Unfortunately, this plan outsources the cost to the borrower in the forms of reduced pricipal Limits now and accelerating loan balnces in the future. As if that weren’t enough, another future cost has been shifted to HUD.

    This same increase in margins probably represents a corresponding future increase in claims on HUDs mortgage insurance.

    FNMA’s actions have weakened the short-term stimulative effect that reverse mortgages could accomplish via the the increased lending limit and the Purchase program, and the long-term prospects of the program as well.

  • It is not the fault of the seniors that Fannie Mae has a problem with investors. This is part of the fall-out from the forward “liar loans.” Seniors will pay the price for this by the decreasing amount of proceeds and the increased bite into their equity as costs of doing reverse mortgages. I agree with Mr. Peters. Fannie Mae has decreased the prospects that the reverse mortgage program will remain a viable product for seniors in need by decreasing the benefits while increasing the costs.

  • Who wants to invest in reverse mortgages? If there was a real market for the product, we would still have a thriving and expanding proprietary reverse mortgage market segment.

    There are, in fact, very few investors. It is said that MetLife holds onto their fixed rate product. It is understandable why they would. Here are some guesses as to why:

    • They understand and know the product.
    • They need long-term investments with
    guaranteed returns.
    • As to their very long-term investments they
    are somewhat cash inflow timing indifferent.
    • Within ten years of endorsement, most HECMs
    will be paid in full.
    • In an ethical manner, HECMs still provide a
    potential source of leads for other products.

    The foregoing means that based on their business model, MetLife investments in HECMs work and work well.

    I do not claim to have any inside information regarding MetLife and welcome Mr. Joseph DeMarkey’s correction of and addition to any of the foregoing.

    For other insurance companies which do not originate HECMs, the opportunity for ethical “cross sales” is diminished since they will not see the loans until weeks following the end of the HECM rescission period. (It is this time lag that forces lenders to have warehouse lines).

    For years, I felt that private, government, and tax-exempt defined benefit pension plans, some defined contribution retirement plans, VEBAs, and other employee benefit plans would find HECMs a particularly good investment. It seems university endowment funds would rush in to purchase these products. Why wouldn’t have MBS investment vehicles snatched HECMs up long ago? Somehow these groups have intentionally ignored direct investment in HECMs. If this is simply due to lack of information, it seems Wells Fargo, Bank of America, and other industry leaders would have ferreted this out and been promoting HECMs as an appropriate investment at least a decade ago.

    For accrual basis taxpayers, HECMs produce current taxable income but no cash to pay any resulting income tax liabilities. Investment by individuals with large estates means they are acquiring an asset with no means to pay estate taxes with income generated by HECMs; even if HECMs could be sold, significant cash basis taxable income might result. With erratic HECM payoffs, cash flow and tax planning become difficult.

    Without sufficient market activity between investors, HECMs have unpredictable cash flows making them illiquid if an investor must divest of them. So where are the potential investors?

    Until HECM interest rates satisfactorily offset the perceived risk of illiquidity (and other risks), the number of investors buying HECMs will be negligible. Fannie Mae’s argument appears on point but the method this government controlled entity selected to gain more investors is not only unconscionable but also irresponsible. Fannie Mae should have and could have done much better to protect seniors who currently need HECMs. The kindest adjective that describes this decision and the one that Mr. Mike Gruley credits Mr. Peter Bell as using is — “draconian.”

  • It’s ironic, but one of the most reviled insurance products, in the RM space, is the annuity. Insurance companies issue immediate annuities and initiate a stream of income to annuitants. The insurance companies win when annuitants die earlier than their actuarial expectancies and lose when annuitants live too long. Insurance companies need to invest the money they get up front, the single premium payment, and try to match their liability with an investment (reserves). I’m no actuary, but it would seem that investing in RMs would provide a steady reliable return that would match, in some respects, the mortality rates of seniors. But, I’m sure that if it is a good investment, that they are already investors; it’s just a matter of, to what extent. Is Snoopy smart, or what?

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