With a national Retirement Risk Index forecasting that half of today’s households will not have enough retirement income to maintain their standards of living, the pressure to attract investor interest in reverse mortgages increases.
Fannie Mae long the stalwart in secondary market support for the product, through its Home Equity Conversation Mortgage, clearly is in pull-back mode. Earlier this year, the government financing agency increased its required yield on reverse mortgages, which had the net effect of increasing interest rates on those loans by 50 to 75 basis points, thus reducing the proceeds seniors receive from a reverse mortgage.
“We’ve been advocating for 10 years that the [private] secondary markets move away from Fannie and play a bigger role in the long-term viability of the [reverse mortgage] industry,” says Michael McCully, partner, New View Advisors, who predicts that Fannie eventually will be replaced as the premier investor when alternative demand develops.
“We all knew at some point Fannie would not be able to buy mortgages forever,” he asserts. “It was an incredibly helpful support for reverse mortgages in the early days as the sole investor,” McCully notes. But its huge (now $50 billion) portfolio of mostly HECM whole loans, “removed incentives for the capital markets to develop new products and other exit strategies,” he says.
Looking ahead, David Fontanilla of Knight Libertas, believes “Fannie may look, in 2011 or 2012, to the capital markets to sell some of their portfolio product,” not an insignificant occurrence, he says. “If they dropped that in the marketplace that would be an awful lot of supply relative to what’s available today.”
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]