Fannie Mae Reverse Mortgage Market Share Falls 85% from 2009

fanniemaelogo.jpgFannie Mae (NYSE:FNM) saw its market share of reverse mortgage acquisitions fall from roughly 90% during the first quarter of 2009 to approximately 5% in the first quarter of 2010 according to its latest filing from the Securities and Exchange Commission (SEC).

“The decrease in our market share was a result of changes in our pricing strategy and market conditions,” said the Government Sponsored Entity (GSE) in the filing.  “Because home equity conversion mortgages are insured by the federal government, we believe that we have limited exposure to losses on these loans, although home price declines and a weak housing market have also affected the performance of these loans.”

As investor interest in Ginnie Mae’s HMBS program continues to increase the industry’s reliance on Fannie Mae has dropped considerably.  Each quarter the GSE’s market share of acquisitions continues to shrink, going from 20% during Q3 2009 to 10% during Q4 2009 and now approximately 5% during Q1 2010.

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During the first three months of 2010, it purchased only $300 million of HECM production, bringing its reverse mortgage portfolio to $50.5 billion as of March 31, 2010.

Chart: FNMA Reverse Mortgage Portfolio Size

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FNMA Reverse Mortgage Portfolio Size

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The GSE said it lost $11.5 billion in the first three months of this year adn will seek $8.4 billion in aid from the U.S. Treasury Department after reporting an 11th-straight quarterly loss according to Bloomberg BusinessWeek.  Fannie Mae had posted $136.8 billion in losses in the preceding 10 quarters, and the new aid request would bring its total draw from the Treasury to $84.6 billion since April 2009.

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  • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.rnrnTo shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.rnrnAre you certain that Fannie Mae is u201closing moneyu201d, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.rnrnAn additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.rnrnWithout specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs. rn

  • I believe the LIBOR HECMs would trade significantly over par as the margins are between 350-350 basis points over that index. Pricing spreads using forward LIBOR curves would be far less than this, meaning they would trade at a premium.nnOne problem with RMs for FM may be that they are accretion loans- no P&I is paid until the “maturity event”. That may not be a great product if one is losing money. On non lump sum distributions principal balances go up over time, and the Feds want FMs portfolio to shrink. Alos, the GN HMBS security may be a superior product. Just a guess.nn

  • mrreverse,rnrnWhy would they have any loss? FHA insurance covers their holdings as well as any other investor. If there is any loss it would be during the period before assignment and then only on insurance and taxes. What losses are you thinking about?rnrnWhere would Fannie Mae find any profits unless they are able to sell HECMs for greater than their balances due? I doubt if that has ever been done on an adjustable rate HECM.

  • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.rnrnTo shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.rnrnAre you certain that Fannie Mae is u201closing moneyu201d, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.rnrnAn additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.rnrnWithout specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs. rn

  • I believe the LIBOR HECMs would trade significantly over par as the margins are between 350-350 basis points over that index. Pricing spreads using forward LIBOR curves would be far less than this, meaning they would trade at a premium.nnOne problem with RMs for FM may be that they are accretion loans- no P&I is paid until the “maturity event”. That may not be a great product if one is losing money. On non lump sum distributions principal balances go up over time, and the Feds want FMs portfolio to shrink. Alos, the GN HMBS security may be a superior product. Just a guess.nn

  • mrreverse,rnrnWhy would they have any loss? FHA insurance covers their holdings as well as any other investor. If there is any loss it would be during the period before assignment and then only on insurance and taxes. What losses are you thinking about?rnrnWhere would Fannie Mae find any profits unless they are able to sell HECMs for greater than their balances due? I doubt if that has ever been done on an adjustable rate HECM.

  • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.rnrnTo shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.rnrnAre you certain that Fannie Mae is u201closing moneyu201d, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.rnrnAn additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.rnrnWithout specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs. rn

  • I believe the LIBOR HECMs would trade significantly over par as the margins are between 350-350 basis points over that index. Pricing spreads using forward LIBOR curves would be far less than this, meaning they would trade at a premium.nnOne problem with RMs for FM may be that they are accretion loans- no P&I is paid until the “maturity event”. That may not be a great product if one is losing money. On non lump sum distributions principal balances go up over time, and the Feds want FMs portfolio to shrink. Alos, the GN HMBS security may be a superior product. Just a guess.nn

  • mrreverse,rnrnWhy would they have any loss? FHA insurance covers their holdings as well as any other investor. If there is any loss it would be during the period before assignment and then only on insurance and taxes. What losses are you thinking about?rnrnWhere would Fannie Mae find any profits unless they are able to sell HECMs for greater than their balances due? I doubt if that has ever been done on an adjustable rate HECM.

  • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.rnrnTo shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.rnrnAre you certain that Fannie Mae is u201closing moneyu201d, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.rnrnAn additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.rnrnWithout specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs. rn

  • I believe the LIBOR HECMs would trade significantly over par as the margins are between 350-350 basis points over that index. Pricing spreads using forward LIBOR curves would be far less than this, meaning they would trade at a premium.nnOne problem with RMs for FM may be that they are accretion loans- no P&I is paid until the “maturity event”. That may not be a great product if one is losing money. On non lump sum distributions principal balances go up over time, and the Feds want FMs portfolio to shrink. Alos, the GN HMBS security may be a superior product. Just a guess.nn

  • mrreverse,rnrnWhy would they have any loss? FHA insurance covers their holdings as well as any other investor. If there is any loss it would be during the period before assignment and then only on insurance and taxes. What losses are you thinking about?rnrnWhere would Fannie Mae find any profits unless they are able to sell HECMs for greater than their balances due? I doubt if that has ever been done on an adjustable rate HECM.

    • mrreverse,

      Why would they have any loss? FHA insurance covers their holdings as well as any other investor. If there is any loss it would be during the period before assignment and then only on insurance and taxes. What losses are you thinking about?

      Where would Fannie Mae find any profits unless they are able to sell HECMs for greater than their balances due? I doubt if that has ever been done on an adjustable rate HECM.

      • I believe the LIBOR HECMs would trade significantly over par as the margins are between 350-350 basis points over that index. Pricing spreads using forward LIBOR curves would be far less than this, meaning they would trade at a premium.

        One problem with RMs for FM may be that they are accretion loans- no P&I is paid until the “maturity event”. That may not be a great product if one is losing money. On non lump sum distributions principal balances go up over time, and the Feds want FMs portfolio to shrink. Alos, the GN HMBS security may be a superior product. Just a guess.

      • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.

        To shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.

        Are you certain that Fannie Mae is “losing money”, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.

        An additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.

        Without specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs.

  • Most adjustable rate HECMs acquired by Fannie Mae did not have LIBOR indices. Most of the HECMs funded in the last seven years are held by Fannie Mae. Most of them have a CMT index and some have margins as low as 1%.rnrnTo shrink its mortgage portfolio and increase cash flow, in all likelihood, Fannie Mae would sell as much of their HECM portfolio which would result in profit or a slight loss as possible. The problem is there are few investors who are willing to purchase monthly or annually adjusting rate HECMs even with higher margins and LIBOR indices at a premium or par.rnrnAre you certain that Fannie Mae is u201closing moneyu201d, i.e., sustaining negative cash flow? No doubt they are incurring horrendous accrual basis losses.rnrnAn additional problem with adjustable rate HECMs, the dates of assignment are very difficult to project. With adjustable interest rates so low, a much higher percentage of adjustable rate HECMs should terminate before assignment to FHA when compared to the same percentages for fixed rate HECMs. Of course if adjustable interest rates rise substantially, the situation could reverse.rnrnWithout specific information about the HECMs held in the Fannie Mae portfolio, it is very difficult to discuss this subject. It is important to understand the Fannie Mae portfolio is bloated with older HECMs, not more recently funded adjustable rate HECMs. rn

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