Life After Fannie Mae for Reverse Mortgages

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.

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“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 nmorse@reversemortgagedaily.com

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  • Again, I hope legislative efforts are made to allow Fannie Mae to continue acquiring HECMs without restriction. With the assignment feature of HECMs, no one investor is required to hold onto HECMs for a long period of time except perhaps HUD.

    One big question yet to be addressed is which lenders will be willing to provide HECMs for coops. Further who will purchase these loans in the secondary market? Since the ownership is not real property but rather personal property, generally corporate stock, there are many questions yet to be answered about this product.

    FHA implementation is just the start. It could be that the number of lenders is very, very limited. The question will be, will there be fixed rate HECMs offered for coops and, if not, will margins be higher for coops than other types of properties?

    Of all the types of properties that this industry has absorbed, this will be the most interesting.

  • I've never understood how COOPs ever qualified for the HECM product, since they don't meet the basic requirements. Seems like that should be a proprietary product.

  • I’ve never understood how COOPs ever qualified for the HECM product, since they don’t meet the basic requirements. Seems like that should be a proprietary product.

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