I came across a post from Reverse Mortgage Information that provides characteristics of HECM borrowers from a recent study that was released by HUD. The study discusses the secondary market for HECMs and goes into detail about the positives and negatives of the securitization of these loans.
The HUD reports given to Congress show that HECM loans have been primarily purchased by a single investor, Fannie Mae, and have been held as whole loans in Fannie Mae’s portfolio. The report also states that originating lenders rarely hold HECM loans in portfolio, even though the loans nearly always carry adjustable interest rates, choosing instead to sell these loans to an investor as quickly as possible. So why is this? According to HUD, a few reasons may be:
1.) Regulated depository institutions may find it difficult to manage portfolio capital requirements if they hold illiquid whole loan assets such as HECMs.
2.) Some lenders may not want to accrue taxable interest income on reverse mortgage assets because this income will not actually be received until the loan is paid off—potentially many years in the future.
The report goes into much more detail and continues to go over the history of the HECM product as well as other aspects of the origination process. To be honest the report isn’t the most exciting thing I’ve ever read but if your feeling up to it feel free to check out the link below.