Fannie Mae Stops Purchasing Reverse Mortgages

Fannie Mae announced it’s no longer purchasing reverse mortgages due to its internal systems lack of ability to handle the new HECM Standard and Saver products according to a letter obtained by RMD.

The Government Sponsored Entity (GSE) is no longer accepting new commitments or deliveries that have case numbers dated on or after October 4, 2010.  Lenders have a 90 day period in which they can deliver any loans that were obtained prior to the start of the Department of Housing and Urban Developments FY 2011.

While the changes might sound drastic, the reality is that Fannie Mae’s importance in the reverse mortgage business has been sliding dramatically ever since it announced significant pricing changes in 2009.  The GSE’s market share went from 68% in the second quarter of 2009 to approximately 2% during the second quarter of 2010.  Fannie Mae purchased $200 million of HECMs during the last quarter and its portfolio has leveled off for the most part at $50.7 billion.


The marketplace found a better alternative in Ginnie Mae’s HMBS program which is the main source of liquidity for reverse mortgage lenders.  According to data from the agency, HMBS issuance rose from $1.357 billion in 2008 to $8.538 billion in 2009.  For 2010, HMBS reached $7.244 billion as of August and will easily pass the record levels of 2009.

There was concern about whether the announcement would impact smaller Ginnie Mae issuers, who don’t have the ability to issue adjustable rate HMBS because of the liquidity requirements, but it’s not the case.  An executive at a leading wholesale lender told RMD that those without the authority should have agreements to sell to someone who does, so its unlikely that it will be an issue.

The industry continues to wait for Ginnie Mae to start accepting new HMBS issuers after it suspended approvals to perform a “comprehensive review of the risks associated with the HMBS (HECM MBS) program both to issuers and Ginnie Mae, in order to evaluate possible changes to the program.”  The agency has refused to release any details on what the new net-worth requirements will be or when they will be announced.

Until they do, the reverse mortgage industry has only nine active issuers.

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    • HECM Vet,

      Are you still stinging from our last encounter? Some economists actually provide insight. Once again you go off topic to do little more than attack.

      I think the reversemaniac and ReverseGuy have hit exactly on the comments that need to be made on this subject.

      The only thing I can add is by law Fannie Mae was mandated to reduce their mortgage portfolio and they are doing that. Reverse mortgages will not reduce their portfolio until termination; in fact, they will generally cause it to grow throughout their life.

      There have been recommendations that Congress cut out an exemption for reverse mortgages but that fell on deaf ears. That is really too bad. One buyer of product is never a good position for an industry….

  • Isn’t it interesting to see how our industry has come full circle? 5 years ago we had one investor, Fannie Mae, and we now have only one secondary market “outlet”, Ginnie Mae.

    Is it just me, or is anyone else nervous about this?

  • Some of the industry’s fears have come true where we are, yet again, solely reliant on one secondary market execution portal. No one was dissolusioned that Fannie Mae was going to make a strong comeback anytime in the near future, but the fact that they are not buying ANY new product will go down as a significant event in our industry’s history.

    We find ourselves back in the same dilemma where smaller (or even mid-size) originators are not able to control their own destiny and are instead locked in to doing business with one of the previously approved GNMA issuers.

  • Bottom line is investor appetite drives mortgage products and price. Nothing new there. GNMA securities are a vehicle to deliver HECMs to multiple investors. This is much better than having only FNMA as the investor (I don’t believe FNMA was securitizing HECMs).

  • For many years, Fannie Mae was the Lone Ranger of HECM secondary market. At the time the HECM program was introduced, Freddie Mac indicated that it too would purchase HECMs. This never materialized.

    It was never Fannie Mae’s intention to be the sole market for HECMs. It was willing to purchase such loans in order to facilitate the initial implementation of the HECM program in 1989.

    The recent changes announced by HUD have thrown the secondary market into some disarray. The lowering of the expected rate “floor” and the introduction of the HECM Saver plan have created the perception among HMBS dealers and investors that there is an increased risk of early payoffs. This mostly causes concern in cases where premium prices are paid for HECMs and HMBS.

    The extreme premium pricing we were able to get for fixed-rate HECMs enabled us to offer “low-cost” or even “no-cost” loans where the fees, including MIP, were built into the interest rate. This was possible because the true market rate was below the expected rate floor but was not sustainable in the long run.

    Many factors will determine whether the perceived increased risk of early prepayment as a direct result of the HUD changes will actually come to pass. Future appreciation and increases to the FHA loan limit for HECMs will play a greater role, in my opinion. And these probably are a long way off.

    • HECM Vet,

      I looked for insight. What I found was lots of rehashing of history with no rational as to why it was needed to reach your opinion.

      Your concerns and mine are totally different. I am far more concerned about potential reductions to the HECM lending limit at the end of next twelve months than increases years from now. Your view skips five or more years. That hardly provides any insight into market trends in the near term.

      Almost all of us expect home value appreciation in the long-term but some insight as to when, where, and why you see that happening would have been helpful. That is what most good economists provide.

      Some insight on increases in interest rates would have been helpful but once again, nothing. It seems that you have become more timid with time.

      Where is the HECM Vet who once stood up and out for and because of convictions? Just because you were way off once does not mean your ideas have no merit or your voice should not be heard. Even your incessant attacks have become little more than Melba toast and the rehashing of those of others long before.

  • Hmmm, let’s see about that “investor appetite”.

    In January of this year, Ginnie Mae announced, without warning, that it was suspending the approval process for all applicants to the HMBS program.

    Yesterday, without warning, the single largest investor of HECMs (Fannie Mae) announces, without warning, that it was no longer pruchasing reverse mortgages.

    What makes you think that Ginnie Mae is not capable of making a similar announcement about its HMBS program? They had no problem pulling the rug out from under those who wanted to be HMBS Issuers….and remember that moratorium on applicants was supposed to only last 2-3 months!

    Unless this industry can develop alternative secondary market sources, we are skating on seriously thin ice.

    • reversemaniac,

      While in principle I agree with Lance, it is very troubling that we find ourselves with only one means to sell HECMs. Ginnie Mae certainly does not seem pressed to open its doors to more lenders.

      While Fannie was committed to purchasing our products, Ginnie Mae is simply providing a vehicle to get the products out to investors. What happens if investors drop out? Ginnie Mae will not buy our products.

      Your concerns are well founded. I cannot believe that in this one thread I have pushed the “Like” button on both of your comments. Go figure!!! Weren’t you the guy who I used to have all of the confrontations with? Time changes many things.

      • Yes, we did have a few confrontations early on but since we are both passionate about this industry, we will always have disagrements. What I learned over time is that you were always civil in the exchanges we had and never reverted to name-calling.

        Civil, spirited, and respectful discourse is something I truly enjoy and so I thank you for the kind comments.

      • “We have nothing to worry about” Seriously?

        Sorry, Atare, but I believe those words were spoken by the captain of the Titanic shortly after it hit the iceberg.

        The entire industry at this time is solely dependent on outside investors in GNMA securities and that places us all in a very high-risk environment. What that means is (1) we all have to hope and pray that GNMA continues the HMBS program, and (2) the “investor appetite” never dries up.

        To say that we have “nothing to worry about” is nothing more than sticking your a head-in-the-sand.

      • Atare,

        It was a terrible experience a few years ago when Fannie Mae with little warning suddenly raised margin requirements. Fannie Mae worked with the industry somewhat. Investors will not. Outstanding inventory will always be at risk of fluctuations.

        You may be at peace with the situation but others of us find the situation unsettling.

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