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For HECM Investors, New Underwriting is Icing on the Cake

Following the recent announcement by MetLife that it will begin implementing a borrower financial assessment for its reverse mortgage loans, the investor market reaction is largely positive, although the decision is unlikely to have overwhelming implications.

“I don’t think the impact on the secondary market will be as significant or as business changing as it would be on the loan side,” says David Fontanilla, Pioneer Analytics & Consulting Group.

The primary comfort to investors is the government guarantee, Fontanilla says. To the extent that the new underwriting will boost the government support of the program, that could be seen as a positive for investors, he says, but the main draw is the fact that their investment will be protected against future losses.

“It’s a step in the right direction,” Fontanilla says. “For the secondary market, it’s a small net positive. Anything that helps ensure the long term viability of the program is important.”

Another potential benefit, he says, could be that if the changes are viewed to help provide sustainability, they might attract new private investment—as long as the underwriting component doesn’t impact volume to a large degree.

As for whether investors will favor some loan pools over others due to the underwriting discrepancy, those who buy and sell the loans say it is unlikely.

“I would think that only the marginal investor, especially ones that are new to the asset, will be more inclined to buy MetLife pools,” says Jeff Traister, managing director for Cantor Fitzgerald.

There is unlikely to be much of a premium on the loans from an investor standpoint, even though the changes do bode well from an overall perspective.

“It’s hard to see right now how all the dominos are going to fall,” Fontanilla says. “The initial instinct for a lot of the investors is they will view as a net positive, but won’t pay more.”

Written by Elizabeth Ecker