As the reverse mortgage industry increases its reliance on Ginnie Mae’s HMBS program, Broker Universe describes how buyout requirements could take a toll on servicers once HECM-securitized loans come to maturity in a few years.
"The reverse product we are working today [requires] a whole different look at the market than … in the past when a HECM, or FHA reverse mortgage, was predominantly sold to Fannie Mae," said Marc Helm, chief operating officer of Reverse Mortgage Solutions.
The article shows how a limited number of available investors is pressuring HECM servicers to expand warehouse capacity as a way to deal with constraints in securitizing loans through Ginnie Mae.
"In the forward world, loans that are securitized by Ginnie Mae are assigned with a default process. In the reverse world, they are assigned only when they get to the 98% of the maximum claim amounts of loans that are not necessarily in default, even then they get 10% of the claim amount. So when that happens, and the HECM loan is part of a Ginnie Mae pool, the lender is required to buy that loan out."
In other words, if a loan that is part of a Ginnie Mae loan pool that is not even close to 98% and going into foreclosure, he said, the lender can leave the loan in that pool if they have already paid the claim funds.
"If the same loan is taken out of a Fannie Mae assignment of a Ginnie Mae pool, Fannie has come up with a regulation that says: If the loan qualifies for assignment at 98% lenders have to buy it out. So you have to do it right away with your own money. But if it goes into foreclosure, you can leave it because it will get foreclosure funds just like you can on a forward loan Ginnie Mae security."
The lender-servicer does not accrue additional costs, he says, "I collect my claim. But it requires me as a servicer to have a very large net worth, credit line, or warehouse line to be able to buy those loans out when they start coming into maturity. How are we going to buy these loans out?"