Generation Turns To GNMA For Competitive Fixed Rate Reverse Mortgage

image Generation Mortgage announced to its brokers that is in the process of working out the details in order to offer a competitive fixed rate HECM utilizing Ginnie Mae’s HECM MBS product. 

Currently the product is available to a select group of brokers in order to fulfill its commitments to Ginnie Mae, but they plan to open it up widely mid to late June said a company statement. 

Companies like MetLife and Generation are able to offer extremely competitive fixed products using Ginne Mae’s HMBS product due to investor interest from Wall Street.  Rate sheets that I’ve seen show rates are almost 1% better (lower) when compared to lenders delivering fixed rate products to Fannie Mae. 

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However, Ginnie Mae’s pricing advantage comes with some additional risks to lenders.  “The biggest concern is that Ginne Mae requires the loan to be repurchased out of the fund when it hits 98%, and if the loan is in default for taxes or insurance, HUD won’t take it,” said Sherry Apanay, Senior VP of Generation Mortgage. 

This creates a problem for non-bank reverse lenders who don’t have the ability to hold the loan on its balance sheet until it pays off.  Sources tell RMD that there continues to be discussions between potential issuers and Ginne Mae officials to see if there is a way to restructure the program to ensure non-bank lenders can compete.

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  • There is a clear need for a better secondary market for HECMS and GMNA securities seem promising but I still wonder what sort of institutional investor wants an asset that accures interest and has no stated maturity. It seems like someone will need to involved and issue bonds with set maturities and make a market in these securities so that they can be priced and marked to market. Maybe FNMA should be the market maker and not the try to carry so much of the product in it portfolio

  • One institutional investor that understands a product with no exact stated maturity, are insurance companies that issue immediate annuities. The annuitant is promised a stream of income, based on actuarial lifespan, for life, (typically with an optional 10-year minimum guarantee). In very basic terms, to reserve for this outgoing stream, insurers usually invest in a basket of long-term bonds that attempt to match an incoming stream to the expected lifetime of the annuitant. An RM pays lenders a stream of income, that likewise is based somewhat on the borrowers life span (ignoring for the moment other triggering events). There is sort of a match here. Any insurance company actuaries out there that wish to comment (I’m sure I have some of the details wrong)?

  • dduck this is different: An Immediate Annuity pays an income stream based on a principal amount plus interest (1-2%) The insurance company is also making money from the princple money invested (usually bonds). The insurance company knows how much they will make over time. This is a different risk especially due to property value. Plus the fixed rate is a lump sum product not monthy payment program?

  • Yes, of course they are different, but they both involve life expectancy. The insurance company has to invest in something, and of course try to make a profit. Just like banks, lenders, bond issuers, etc, need to try for a profit.
    I was trying to project that since they are similar but opposite, RMs and IAs, that perhaps the insurance companies could be potentially bigger investors in RMs. Actuaries are very smart as long as they are made aware of an investment opportunity. As I said, I could be way off base.

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