Ginnie Mae Plans to Enhance HMBS Program for Reverse Mortgage Lenders

Ginnie Mae currently has several initiatives in the works that it believes will help open the door to more reverse mortgage lenders participating in the issuance of HECM mortgage-backed securities (HMBS), according to one senior agency official.

Growth in the reverse mortgage industry can mean many things. In the secondary market, growing the HECM market pie is dependent upon attracting more investors to the HMBS program. Like most things in the reverse mortgage space, this requires education. And Ginnie Mae, which has been securitizing HECM loans via the HMBS program since 2006, believes it can do more to facilitate such growth.

Perhaps Ginnie Mae has not gone as far as it could over the years in educating reverse lenders and servicers—the front end of the HECM business—about the critical role of capital markets and HMBS investors, said Michael Drayne, senior vice president of Ginnie Mae’s Office of Issuer and Portfolio Management.

“The two sides are not as integrated as they ought to be and the health of the HMBS program demands that needs to change,” Drayne said Tuesday during the National Reverse Mortgage Lenders Association eastern regional conference in New York City.

Drayne is responsible for the management of Ginnie Mae’s relationships with mortgage lenders who issue securities under the agency’s mortgage-backed securities program, including HMBS.

This year marks the tenth anniversary of the agency’s undertaking to create the HMBS program. But while over time the HMBS market has grown to comprise over 333,000 loans with a value of $53.8 billion in unpaid principal balance as of February 2016, Ginnie Mae says it can do much more to address the needs of its issuer participants.

The agency recently completed a survey of the entirety of its HMBS portfolio in efforts to find ways to improve and modernize the program. One of the biggest issues facing the program right now, Drayne said, is finding a way to address liquidity challenges faced by HMBS issuers.

“There are a lot of policy moves that we could undertake that would make this easier, but we have to think all of that through, which isn’t easy for us—we’re still not a very big agency,” Drayne said.

Capital market developments could help Ginnie Mae with this issue, Drayne said, but the number of current HMBS issuers needs to expand.

“Another related issue very significant to Ginnie Mae is there aren’t enough issuers, servicers or institutions out there who are ready, willing and able to service Ginnie Mae securities,” he said. “In the sub-servicing world there are some real challenges—that’s something that is a concern for us.”

There are currently just 16 issuers participating in the HMBS program. Issuances for Fiscal Year 2015 came in at $8.7 billion, averaging about $725 million per month. To date, in FY 2016—which began in October for Ginnie—HMBS issuance is at approximately $4.1 billion, averaging about $825 million per month.

About 51% of all new Ginnie Mae issuance derives from the top-3 HMBS issuers, according to Ginnie Mae data presented Tuesday.

Ginnie Mae hopes to make the current environment easier to become an agency HMBS issuer. In doing so, the agency expressed an eagerness to make policy changes to see if that would remove the stresses issuers face, in the hope that will result in more institutions being willing to make the necessary investments to be able to service reverse mortgage loans.

“That is a big part of what the Ginnie Mae HMBS program is,” Drayne said. “It’s not as obvious or well understood as the core mission of attracting capital into the United States housing system—but it is also part of our mission to foster the development of servicing expertise for every dollar of mortgage-backed securities that is out there.”

“We continually are concerned on both the forward side and reverse side that we could be looking at a future where servicing and sub-servicing infrastructure is lacking behind the need,” Drayne added.

Ginnie Mae is currently at a significant juncture where the agency knows there is a lot of work to be done in addressing these issues facing expanded growth the HMBS marketplace, but Drayne said the agency just needs to “carve out” the resources to do this and figure out what is the most important areas to tackle first.

Before concluding his speech, Drayne left conference attendees with the thought that he anticipates Ginnie Mae coming back to the reverse mortgage industry with some news regarding its endeavors, specifically, what the agency has learned as a result from its internal survey of the HMBS program.

“I apologize for being vague about this now, but this is a fairly new development for us,” he said. “Hopefully, as spring turns to summer, we can be more informative about the scope and scale of the HMBS modernization program that Ginnie Mae is going to go through in the next year or two years to come—similar to what FHA has been doing in the last few years.”

Written by Jason Oliva

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