Ginnie Mae Raises HMBS Issuer Net Worth Requirement Five-Fold

After an eight month moratorium on new HMBS issuers, Ginnie Mae announced it’s increasing net worth requirements and starting to accept new issuers again.

Effective immediately, new issuers must have a minimum net worth of $5 million plus an additional one percent of the aggregate amount of the outstanding remaining principal balance and any commitment authority available to issue securities.  Existing HMBS issuers will have until October 1, 2011 to meet the new requirements.

“These changes are designed to ensure that all Issuers of Ginnie Mae HMBS have adequate capital and liquidity to protect the program and taxpayers from undue risk,” said Ginnie Mae President Ted Tozer. “We believe the new requirements provide a measure of safety for our program; they reflect the significant capital and liquidity required to manage an HMBS portfolio in a financially sound manner.”

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Previously, HMBS issuers were required to have $1 million in net worth plus 1 percent of the aggregate amount of issuers remaining principal balance outstanding and available commitment authority to issue securities between $5 million and $20 million, plus an additional .2 percent if greater than $20 million.

Ginnie Mae is also instituting a new liquid asset requirement and will require that HMBS issuers have liquid assets of 20 percent of the agency’s net worth requirement. The new liquid asset requirement will help to ensure funds are available when there is a need for cash to fund borrower advances, loan buyouts, and/or to pay for potential indemnification requests from insuring agencies. HMBS Issuers will have until October 1, 2011, to meet the new liquid asset requirement.

Ginnie Mae also said it’s increasing the servicing fee to 36 basis points.  The new fee includes the six basis point guaranty fee and additional information about the new fee with be available in March 2011.

Only two years old, the HMBS program is the only source of liquidity for reverse mortgages and continues to see investor interest increase.  While the new requirements put becoming an issuer out of reach for many, lenders like Urban Financial – backed by Knight Capital Group – are expected to be one of the first new issuers.

Even with only nine active lenders participating in the program, the unpaid principal balance of HMBS climbed to $18.2 billion and the number of participations (the funded portions of HECM loans that have been securitized) increased to 421,530 during fiscal year 2010 according to a report from Ginnie Mae.

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  • So how many more lenders are there that will be included at the $5 million equity requirement that would not have been included at a $10 million level? But of course the 1% additional requirement makes the capital requirement even greater.

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