Today the Wall Street Journal announced that Ginnie Mae plans to roll out as soon as today what it’s calling the first “standardized” bond issue backed by reverse mortgages. The offering is expecting to total about $120 million, consists of more than 1,000 government insured reverse mortgages.
Ted Foster, senior vice president for mortgage-backed securities at Ginnie Mae, said bundling reverse mortgages into securities could increase liquidity by providing capital-market funding sources to lenders and ultimately help drive down costs for consumers. “Our objective is to get the best price for consumers by supporting the underlying product,” he said. “Two years from now, the market [for reverse-mortgage-backed securities] will be there.” For years Fannie Mae has been the most dominant buyer of reverse mortgages but recently we have seen other financial-services firms like Lehman Brothers, Bank of America, and Goldman Sacs buying reverse mortgages in bulk with the idea of repackaging them into securities.
But Mr. Foster said until now, reverse mortgages have been packaged and sold by investment banks only to a limited number of investors through private placements — via a complex tax-free structure called a Remic. The Ginnie Mae deal, he said, represents the first standardized reverse-mortgage security on the market and should help “open up the universe” to more investors, especially those with long-term investing horizons such as pension funds and insurance companies.
The WSJ article notes that, the bond offering comes as the global credit-market turbulence continues to scare investors away from many types of mortgage securities. Mr. Foster said he expects the Ginnie Mae deal to “benefit from a flight to quality from investors’ side” as the bond “carries the full faith and credit” of the U.S. government. To read a full copy of the article click the link below.