Fannie Mae Starts to Securitize HECM Portfolio, Issues $9 Billion BofA REMIC

Fannie Mae (OTC BB: FNMA.OB ) has securitized over $9 billion of HECM reverse mortgages—a little more than 18% of its total portfolio—in one transaction.

The government sponsored enterprise issued a Real Estate Mortgage Investment Conduit (REMIC) consisting of $9,255,811,613 HECM loans originated by Bank of America. A REMIC is a type of multiclass mortgage-related security in which interest and principal payments from mortgages are structured into separately traded securities.

The underlying REMIC securities are secured by reverse mortgages that are insured by the Federal Housing Administration.  The pool of loans consists of adjustable rate one-month LIBOR and CMT loans, with approximately 9.89% and 7.59% of the Group I Loans and Group II Loans in default, but not yet declared due and payable according to the prospectus.

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As of Q1 2011, Fannie Mae had a $50.9 billion portfolio of reverse mortgages. The GSE’s involvement in the business has tapered off as reverse mortgage lenders started issuing securities through Ginnie Mae’s HMBS program.

Bank of America announced it was leaving the reverse mortgage business in February as part of a strategic decision to focus on other key areas of its business.

The REMIC composed of reverse mortgages is a first for Fannie Mae, but not the first REMIC in the industry.  Last year, Ginnie Mae issued the first reverse mortgage REMIC composed of $130.9 million of Bank of America reverse mortgages.

Fannie Mae said it expected to issue the certificates on May 27, 2011.

“Fannie Mae does not currently plan to sell the securities it issues, but rather plans to hold the securities in its portfolio for the foreseeable future,” said Pete Bakel, Financial Communications, at FNMA in an email to RMD.  “In turn, it is not anticipated that this securitization will have any impact on the overall reverse mortgage market.”

Editors Note: A previous version of this article said that FNMA unloaded the loans, which was incorrect.  The loans are being securitized.

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  • And so the end of Fannie Mae participation in the RM industry begins to unwind.  How long before Fannie Mae strips out all HECMs from its present portfolio?  Will Fannie Mae reenter the marketplace thereafter?  Many questions, few answers.

  • This does present an interesting question…

    With Fannie getting their feet wet with a reverse mortgage securitization, does that possibly crack the door open for them to explore re-entry as a secondary market option for the industry? 

    They could purchase whole loans, such as they did in the past, and act as a GNMA aggregator by placing the loans in to a HMBS (keeping them off of their balance sheet).  They do this currently on the forward side of their business already.

    I don’t know if the mechanics would work, or if the conservator would even allow it, but it sure would be nice to have options.

    • Something similar to this was discussed in a session at NRMLA DC conference.  Even if they don’t end up becoming a second securitization option to the industry (alongside Ginnie HMBS), this is a positive step for industry development.  Especially if it leads to more dollar volume and loan data available for investors.

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