Ginnie Mae’s HMBS Program is the Holy Grail of Fixed Income Market

With Fannie Mae bowing out of purchasing reverse mortgages in October, Ginnie Mae is the only game in town when it comes to the secondary market.

“There really isn’t any alternative right now,” said Craig Corn, MetlIfe Bank during the National Reverse Mortgage Lenders Association’s annual event in New Orleans last week. “It’s the liquidity for the reverse mortgage market.”

Corn admits that when an investor who has bee supporting the space for almost 20 years leaves, it’s never a good thing.  However, “the practical reality is that it hasn’t been competitive for the last 12 to 24 months,” he said.

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For the most part, the industry shrugged off the exit of Fannie Mae since issuance of Ginnie Mae’s HMBS program has skyrocketed over the last two years, going from $1.357 billion in 2008 to $8.538 billion in 2009 and is on track to set a new record in 2010.

“HMBS is the holy grail of the fixed income market because it has the full faith and credit of the federal government and an excess spread,” said Joe Kelly, partner at New View Advisors during the session.  “It has an extraordinary amount of prepayment protection because it’s an actuarial product and the tremendous success provides the industry a growing secondary market.”

Kelly said the industry needs to resolve the issue of taxes and insurance defaults because “the issuers are focusing on this like a laser beam.  If we can proactively address this, the industry will be much better off.”