Fannie Mae Pricing Brings More Diverse Investor Base

The secondary market for reverse mortgages is welcoming the expansion of adjustable rate securitizations through Ginnie Mae’s HMBS (HECM MBS) program. Leading the way for its sheer size is Bank of America, which is producing $200 million to $300 million a month in fixed and adjustable HMBS, according to Alan Cates, pricing strategy and secondary market manager for the Reverse Mortgage Division at BofA.

Cates tells RMD that his institution released its fixed-rate product on Aug. 24 of this year. Up to that point, all originations were adjustable-rate products, he reports.

The adjustable-rate HECM has drawn a “varying scope of different borrower types with different utilization patterns,” thus promising greater expansion of secondary market support for the product. Yet, Cates acknowledges that “other organizations are reluctant to retain that risk [because] in funding those balances at par [as] they may not have the balance sheet or capacity to take on commitments for a large number of loans not knowing what they can do or how the market will change and what draws will be worth to the secondary market in the future.”

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The “big story” in secondary marketing for HECMs is Fannie Mae, adds Cates. “They were the market for most of 2007 and 2008 and early-2009,” he notes. But, now, “other investors are re-engaging in that market as Fannie has reduced their prices to competitive levels and stopped supporting it. That diversity of investor base is good for the industry,” the Bank of America executive believes. “It will grow as people understand the product and its performance is documented.”

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade.  He can be reached at [email protected] 

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  • Neil,

    Great article!!! We are no different than any other industry. The question is will the reward exceed the risks. Here B of A is taking the lead. It is hard to believe that if it took this long for B of A to add fixed rate HECMs to their product line that have foolishly decided to take the steps in the secondary market they are.

    I hope B of A proves this is a profitable and prudent business decision. Combined with their other activities though, the risk seems very reasonable and well thought out. Smaller lenders with less diversification may find that this route still too risky even if B of A proves otherwise for their operations.

  • Neil,rnrnGreat article!!! We are no different than any other industry. The question is will the reward exceed the risks. Here B of A is taking the lead. It is hard to believe that if it took this long for B of A to add fixed rate HECMs to their product line that have foolishly decided to take the steps in the secondary market they are.rnrnI hope B of A proves this is a profitable and prudent business decision. Combined with their other activities though, the risk seems very reasonable and well thought out. Smaller lenders with less diversification may find that this route still too risky even if B of A proves otherwise for their operations.

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