As politicians, the press and public debate the “goodness” of the reverse mortgage product, the investor market is upbeat about its future prospects. Acknowledging that 2010 reverse origination volume would be “lower than the last part of 2009,” Chris Witek, partner, BuckleySandler LLP, maintains that the secondary market appetite (i.e. Ginnie Mae securities) is strong.
“Most people are still very bullish on HMBS; investors are flocking to them [and] the opportunities are just humongous,” according to Witek. “One thing that could affect [conditions],” he advises, is the current Ginnie Mae suspension and review of new issuers.
An official of the HUD agency said in mid-April that he expected to complete a comprehensive review and announce any resulting [issuer] changes “within the next two to three months,” a deadline that would have been reached by mid-July. (RMD reached out to the agency for an update but had not received a response at press time.) The approval suspension was needed to give Ginnie an opportunity to review the program following unprecedented growth in government backing for mortgage lending generally over the past two years, according to the official.
Meanwhile, “challenges and risks” within the HMBS program, according to Witek, makes it a pathway “not for the faint of heart. It’s been a great success story,” he comments, but “issuers need to have [the necessary] financial wherewithal to be successful participants.”
At ground level on the front-lines, reverse mortgages are “still a good market,” says David Peskin, chairman of Guardian First Funding in Melville, N.Y. The primary adversity is depressed home values, which has limited the pool of potential recipients. “We used to originate six loans for every 10 [prospects] we talked to, but now that’s down to three or four,” reports Peskin. “The customer base is out there,” he says, but “home values don’t support the loan they want. So, it’s more challenging. The principal limit factor reduction didn’t help either,” he adds.
Although front-end fee reductions, removal of servicing set-aside offsets and some home value adjustments have helped, “they’re not enough” to counter the property appraisal reductions, Peskin laments. “We’re working harder to get same amount of loans.”
Written by Neil Morse