Financial Freedom Issues Three Reverse Mortgage Securities Under New Ginnie Mae Program

GNMALogo Government National Mortgage Association (Ginnie Mae) announced last Friday that Financial Freedom, issued two fixed rate reverse mortgage transactions and one LIBOR transaction under Ginnie Mae’s Home Equity Conversion Mortgage (HECM) Mortgage-Backed Securities (HMBS) program. 

The $177 million fixed rate issuances and the $104 million LIBOR issuance are among the first MBS pools backed by Federal Housing Administration (FHA)-insured fixed rate and LIBOR reverse mortgages.  The three pools pushed the Ginnie Mae HMBS program to $648 million in issuance with a total of six HMBS pools.  

“The fixed rate and LIBOR HMBS are important next steps in the evolution of a secondary market for reverse mortgages,” said Michael J. Frenz, executive vice president of Ginnie Mae.  “This will go a long way toward adding liquidity to the market and increasing the investor base for HECM products by providing another alternative to investors backed by the full faith and credit of the U.S. Government.”

There has been doubts whether the LIBOR product would gain the traction needed to overtake the CMT but as time goes on the LIBOR product continues to become more attractive.  The ability to achieve strong, reliable, and sustainable execution in the secondary market ultimately lowers costs for the consumer by expanding product access as more lenders, attracted by the viable business opportunity, begin to offer the products to borrowers.

“As a leading producer of HECM loans, Financial Freedom is committed to broadening the secondary market for reverse mortgages in order to bring the related benefits of better execution to our senior customers,” said Michelle Minier, CEO of Financial Freedom. “The advent of the Ginnie Mae program is timely, as its full faith and credit guarantee addresses credit concerns investors might have. We see these two issuances as important steps toward the development of a liquid and efficient market in Ginnie Mae HMBS.”

The Ginnie Mae HMBS allows issuers to securitize an individual HECM loan into multiple HMBS transactions as lenders distribute funds to borrowers over time.  Issuers can securitize the initial loan draw, all subsequent loan draws, the mortgage insurance premium, servicing and guarantee fee, and receive market pricing on the entire loan amount.  Issuers only need to pass through HMBS payments to investors as homeowners pay off the HECM loan.  Before the HMBS, reverse mortgage lenders only received a premium on the initial loan draw and investors reimbursed the lender on subsequent loan draws, dollar for dollar.  

Deutsche Bank, a leading global investment bank, sold the $102 million HMBS pool to secondary market investors on behalf of Financial Freedom.  "Deutsche Bank is proud to help establish a new and innovative capital markets exit for HECMs.  We have a dedicated reverse mortgage team that is one of the market leaders in this space," said David Fontanilla, a vice president at Deutsche Bank responsible for trading the reverse mortgage product.  

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