Ginnie Mae to Lift Moratorium on New Reverse Mortgage HMBS Issuers

NewImage.jpgMore than six months after suspending the approval of new HMBS issuers, Ginnie Mae President Ted Tozer announced it will lift the moratorium in December during a speech at the National Reverse Mortgage Lenders Association’s annual conference in New Orleans.

While the announcement was welcome news, Tozer failed to bring the most important piece of information, the new net worth requirements.

Earlier during the conference, Michael Nardacci, Director of Ginnie Mae, said the agency plans to release the details by year end.

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“We really are taking our time to get it right, please bear with us as we try to get this correct,” Nardacci said.  “In terms of the HMBS market, it’s very expensive and issuers need to be very well capitalized to serve the product.”

Ginnie Mae is the only source of liquidity for reverse mortgage lenders after Fannie Mae announced it would no longer purchase reverse mortgages (HECM) in October. While the HMBS program has grown from $1.357 billion in 2008 to $8.538 billion in 2009, overall, the product is “under 2% of what GNMA does” said Nardacci.

There are currently 10 approved HMBS issuers but others like Urban Financial – backed by Knight Capital Group – have been very public about their desire to get approved.  Industry sources tell RMD the new net worth requirements will be raised dramatically, north of $10 million to ensure issuers can meet draw requirements.

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    • John,

      If the equity requirement is $10,000,000, then Ginnie Mae is trying to become the one who giveth and taketh away. The problem is Ginnie Mae is not in that league but it can certainly make business life miserable which it seems bent on doing.

  • I find it interesting that on the forward side, GNMA is doing everything possible to reduce their concentration of risk. On the reverse side, they are doing everything possible to increase their concentration of risk. Just because you are big does not mean you are more stable.

    Anybody remember TBW?

    • reversemaniac,

      You are right but there is another way to look at the issue. On the forward side, the risk is more at the beginning of the transaction so to spread risk among all players upfront seems reasonable.

      With HECMs and other reverse mortgages, the risk generally rises over time. Thus one would want to concentrate risk in those most likely to survive. With brokers and smaller lenders, the problem is they generally terminate or substantially downsize after the death or retirement of the majority owner or after a substantial change in management. A company with substantial equity tends to survive not only internal changes but also economic.

      To the degree the Ginnie Mae decision is based on a long-term view of risk, it is somewhat understandable — even though I do not agree with it.

      Like John, I agree with the concern you have expressed in the past about having only one outlet for our products. It is far less than ideal. We need more outlets. The total loss of Fannie Mae is a much more significant loss than many seem willing to acknowledge.

  • Critic,

    You make a good point and so do you Reversemaniac. The news could wind up only a temporary jolt of good news but as the Critic said, GNMA is the one gifith but we know they can taketh away.

    In view of this, I reverse my initial burst of enthusiasm. I will take a caution view of the announcement. This just reinforces the need for alternate sources to sell our product into. We are on thin Ice and will be until we see the investment community take interest again.

    Like Reversemaniac said, “Any body remember TBW”?

    I am one individual that remembers TBW more than any one. I was the founder of TBW. I sold the firm to a Federal Savings & Loan out of Peoria, Ill. after I grew the company into a very profitable entity. I wish I did not sell TBW, hindsight right?

    If I kept the company, I would like to think it would still be in existents today. The concept was great and the service to the industry was needed. Yes, I do remember and what you say is so true about the biggest!

    Thank you both,

    John A. Smaldone

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