Following a notice published by Ginnie Mae earlier this month indicating the organization would no longer allow securitization of variant fixed-rate reverse mortgage loans, lenders are adapting to the news.
On April 1, the Government National Mortgage Association (Ginnie Mae) notified the lending community that due to risk factors, it will prohibit the inclusion of fixed-rate home equity conversion mortgage (HECM) loans where borrowers can choose a payment plan option allowing future loan advances against the principal limit.
There are several of these products available in the market currently, after an initial rollout by lenders Reverse Mortgage Funding and Live Well Financial in late 2013. Wholesale lenders have also begun to offer the products in recent months under new branding, such as Urban Financial of America’s March rollout of its Flexible Fixed HECM product.
Urban has stopped accepting new business for its Flexible Fixed HECM as of April 4.
“We are no longer taking applications or accepting submissions from our wholesale partners,” a UFA spokeswoman told RMD. “Any Flexible Fixed loans in the pipeline have until the end of this month to close and fund.”
Ginnie Mae specified in its notice that fixed-rate variations allowing for future draws post-closing can be pooled until June 1, but as of June 1 or later, HECM securities may not include fixed-rate loans outside of the single disbursement type.
Two lenders that shifted the product landscape with the introduction of the alternative products are also adapting to the changes.
Reverse Mortgage Funding, which introduced the HECM Choice in December to allow borrowers to take a fixed-rate loan while allowing for them to access some proceeds upfront and the balance of the principal limit following the first year post-closing, declined to comment on the Ginnie Mae ruling.
However, sources have confirmed to RMD that the company is continuing to offer its product with some modifications
Live Well Financial, the company to later introduce similar products including the Fixed Advantage, Fixed Fourtune and Fixed Freedom, which allows for an open-end line-of-credit option at a fixed rate, will eventually discontinue the loan types no longer eligible under Ginnie Mae’s pooling criteria.
Live Well will close and fund its fixed-rate future disbursement products through April 30, 2014 in order to meet the Ginnie Mae cutoff, the company confirmed to RMD.
Meanwhile, Live Well has also announced it is bringing a new product to market in response.
The new product allows borrowers to take a reverse mortgage at a rate that adjusts on an annual basis. It is an FHA-insured open-end reverse mortgage offering borrowers the ability to access 100% of the principal limit within Department of Housing and Urban Development guidelines, using an interest rate that is fixed for the first year with annual adjustments thereafter.
The loan carries a maximum cap of 5% above the initial rate with annual rate increases limited by a 2% cap.
When asked about the potential impact to HMBS issuance the changes outlined last week may cause, Ginnie Mae said it will not speculate.
“Ginnie Mae is not inclined to speculate about the volume impact, because, at this time, we do not have a good sense for whether/to what extent borrowers would merely select another available product when this product is no longer made available,” a Ginnie Mae spokeswoman told RMD.
This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.
Written by Elizabeth Ecker